National Commission on the BP Deepwater Horizon Oil Spill
and Offshore Drilling
The History of Offshore Oil and Gas in the United States
(Long Version)
Staff Working Paper No. 22
Staff Working Papers are written by the staff of the National Commission on the BP
Deepwater Horizon Oil Spill and Offshore Drilling for the use of members of the
Commission. They are preliminary, subject to change, and do not necessarily reflect the
views either of the Commission as a whole or of any of its members. This draft was used
extensively in the preparation of Chapter 2 of the Commission’s report and for a part of
Chapter 3. It is provided to members of the public who may be interested in more detail
than allowed within the space constraints of the official report.
March 1938 was an eventful month in the world of oil. The government of Mexico
nationalized its oil industry, establishing a precedent for later nationalizations
elsewhere. A hemisphere away, Standard Oil of California (later, Chevron)
completed the first discovery well in Saudi Arabia, the greatest oil find of all time.
These events overshadowed another milestone that took place in the Gulf of
Mexico that very month – the first production of offshore oil.
1937- First Oil Rig offshore,
Pure & Superior Oil, with
Brown and Root
Beginning in the 1890s, oil companies had drilled wells in the ocean, but from
wooden piers connected to shore. In the 1930s, Texaco and Shell Oil deployed
moveable barges to drill in the South Louisiana marshes, which were protected
from extreme conditions in the ocean. In 1937, two independent firms, Pure Oil
and Superior Oil, finally plunged away from the shoreline, hiring the East Texas
construction company, Brown & Root, to build the first freestanding structure in
the ocean. It was located on Gulf of Mexico State Lease No. 1, in fourteen feet of
water, a mile-and-a-half offshore and thirteen miles from Cameron, Louisiana, the
1
nearest coastal community. In March 1938, this structure brought in the first well
from what was named the Creole Field.1
The Creole platform severed oil extraction from land. Just as importantly, it did so
profitably. When future generations look back on the history of oil, they may see
this event as equal in importance to the other two developments set in motion in
the spring of 1938. The march of innovation into ever-deeper waters and new
geological environments offshore is already one of the most important stories in
the history of the oil business, if not modern business in general. The largest
additions to world hydrocarbon reserves and production during the next several
decades will likely come from offshore and increasingly from “deepwater,”
beyond 1,000-foot depths.
The Gulf of Mexico is where the offshore and deepwater drilling began, and it
remains a vital source of oil and gas for the United States. Its geology is
complicated, but enticing. The large, sand-rich depositional system of the
Mississippi River that spilled onto the continental margin for tens of millions of
years created a world-class petroleum province. The salt domes that pocked the
Gulf Coast provided excellent traps for oil and gas, which became easier to
decipher over time. 2 Prior to 1938, oil hunters had made hundreds of discoveries
under the Louisiana and Texas coastal plain. There was no reason to believe that
this geology would stop at the shoreline.
The Creole platform highlighted the risks as well as rewards encountered offshore.
A hurricane knocked out many of the pilings during the early phase of
construction. The lack of crew quarters on the platform created hardship for
workers commuting back and forth from shore on shrimp boats in choppy seas.
Many more challenges lay ahead. The marine environment imposed a unique set
of hazards for oil companies trying to adapt land-drilling methods offshore. They
would have to squeeze complex drilling and production facilities onto small
platforms standing or floating in open water. Building and operating such
structures, in a part of the ocean that was exposed to hurricane-force winds and
waves, initially called for untested designs and procedures. High costs intensified
the time pressures to find solutions to these challenges and speed up work. The
remoteness of facilities and their space constraints amplified the perils of working
2
under adverse conditions with dangerous equipment and combustible materials.
“Nobody really knew what they were doing at that time,” recalled a member of
Kerr-McGee’s earliest offshore drilling crew. “It was blow-by-blow. And it wasn’t
easy living out there.” 3
Each step into deeper waters posed new and daunting challenges. As geologists
and drillers chased opportunities and made discoveries in deeper water, existing
production technology could be pushed only so far. Development would stall at a
limiting depth, sometimes for several years, until advances were made to catch up
with exploration. Blowouts, drilling vessel disasters, and platform failures often
forced engineers back to the drawing board. Steadily, the offshore industry
pioneered ways of meeting economic and environmental challenges offshore, first
in the Gulf and then around the world. But the risks never went away.
Wading Into Shallow Water
World War II, fuel ban,
suburbs, consumption.
Postwar numbers for
auto purchases, annual
miles travelled, tanks of
gas purchased each day
’54.
The concerted push offshore came after the Second World War, which put
development on hold as oil companies diverted their attention to mobilization.
On August 15, 1945, the day after the Japanese surrender in the Pacific War, the
United States lifted gasoline and fuel oil rations. The roar of car engines filled
streets and highways everywhere. Soon, bulldozers were grading miles of new
roads to usher families into sprouting suburban neighborhoods. Americans
renewed their love affair with the automobile, which once again could provide a
degree of mobility and independence that always had appealed to American
sensibilities. In the first five years after the war, they bought an astounding 14
million automobiles, increasing the number of cars in service to 40 million. The
average car in the United States annually traveled a distance equal to halfway
around the world (12,500 miles). By 1954, Americans purchased 7 million tankfuls
of gasoline per day. 4 Booming demand for gasoline and other oil products caught
oil companies by surprise. They had predicted healthy growth, but not like this.
Increased automotive demands, coupled with growing use of home heating oil,
edged petroleum ahead of coal as the leading source of energy in the United
States.
3
Military tech -> Oil
tech
1947 - Kerr-McGee,
Kermac 16, 10.5 miles
out.
1948 - Humble Oil
introduced latticed steel
templates instead of
wood, on Grand Isle 18
lease
1947 - Supreme Court
rules in favor of Federal
claims on subsoil of
continental shelf
Oil firms responded by embarking on a quest to find new reserves at home and
abroad. The intrepid ones returned to drill in the open waters of the Gulf on
leases offered by the state of Louisiana. Many war veterans contributed to this
endeavor, both as managers and laborers, and key wartime technologies and
equipment provided essential new tools. Sonar and radio positioning developed
by the U.S. Navy for warfare at sea proved valuable for oil exploration offshore.
The method of unspooling pipelines across the English Channel to supply Allied
forces in Europe with fuel eventually found application in the Gulf. The Navy
Experimental Diving Unit trained schools of divers in underwater salvage
operations and introduced mixed-gas and saturation diving techniques, seeding
the commercial diving business that became vital to offshore operations. Gulf
Coast construction companies, such as Brown & Root and J. Ray McDermott, and
numerous boat operators cheaply acquired war-surplus landing craft and
converted them to drilling tenders, supply and crew boats, and construction and
pipelaying vessels. 5
Each new drilling project advanced the state of technology. In 1947, Kerr-McGee
Oil Industries drilled the first productive well “out-of-sight-of-land,” on a platform
located 10.5 miles off the Louisiana coast in the Ship Shoal area. This platform,
called the Kermac 16, used a war-surplus tender barge to house mud and most
other supplies, plus the quarters and galley for workers. The size of the selfcontained drilling and production platform therefore could be reduced (about
1/20 the area of the Creole platform), and sunk costs minimized, in case of a dry
hole. In 1948, on the Grand Isle 18 lease, Humble Oil (the Texas affiliate of
Standard Oil of New Jersey) introduced the concept of latticed steel templates, or
“jackets,” which provided greater structural integrity compared to those built with
individual wood piles. 6
Just as these pioneering projects opened up a new oil horizon, an epic legal and
political impasse abruptly halted exploration. In 1945, President Harry Truman
had proclaimed federal authority over the subsoil of the U.S. Continental Shelf.
California, Texas and Louisiana defied this proclamation and continued to lease
offshore land. The U.S. Justice Department responded with a series of suits
against the states. The U.S. Supreme Court ruled against California in 1947 and
against Louisiana and Texas in 1950, declaring that the federal government
4
possessed “paramount rights” that transcended the states’ rights of ownership.
Offshore leasing and exploration stalled for three years, as Congress held
seemingly endless rounds of hearings and the 1952 presidential candidates
postured around proposals to return, or “quitclaim,” submerged coastal lands to
the states. 7
1953 - Submerged Land
Act. & Out Continental
Shelf Lands Act (OCSLA)
States up to 3 miles
offshore, Feds further
out.
1953- Thunder Bay
After months of rancorous debate, Congress finally passed compromise legislation
signed in May 1953 by newly elected President Dwight D. Eisenhower. The
Submerged Lands Act validated all state leases awarded before the Supreme Court
decisions and reserved to the states all land within three nautical miles of their
shore (Texas and the West Coast of Florida were later able to obtain a boundary
out to three leagues, or 10.4 miles, based on historical claims). “Where’s Texas?”
Eisenhower playfully called out as he signed the bill into law, acknowledging the
state that had voted Republican in the Electoral College for only the second time
in its history, largely because of Eisenhower’s support for the state’s offshore
claims. 8 Two months later, he signed the Outer Continental Shelf Lands Act
(OCSLA), which placed all offshore lands beyond the three-mile limit under federal
jurisdiction and authorized the Department of the Interior (DOI) to issue leases.
One month after Eisenhower signed the OCSLA, Universal Pictures released the
film, Thunder Bay, starring Hollywood legend, Jimmy Stewart. Shot on KerrMcGee facilities in Morgan City, Louisiana, the film celebrates “the brawling,
mauling story of the biggest bonanza of them all!” 9 Thunder Bay depicts the
conflict between the shrimp fishermen and oilmen, who eventually reach a
rapprochement after an offshore platform helps attract a record shrimp harvest.
Despite the movie’s fanciful plot, the two industries did indeed learn to live with
each other, a relationship Morgan City commemorates annually in September at
its “Shrimp and Petroleum Festival.” 10
Upon the legislative settlement of the Tidelands dispute, offshore activity revived.
In 1954, the Department of the Interior’s Bureau of Land Management (BLM)
office in New Orleans held the first federal lease sale. Meanwhile, the U.S.
Geological Survey’s (U.S.G.S.) Conservation Division opened a new office to
supervise operations and collect revenues. 11 To explore and develop their new
leases, oil firms tapped into a pre-existing Gulf Coast oil-service sector, but they
5
also promoted the formation of a distinct offshore industry by contracting out for
specialized services in marine geophysical surveying, offshore engineering and
construction, transportation (boats and helicopters), diving, and, most
importantly, mobile drilling. 12
1954- Offshore Drilling
and Exploration Company
(ODECO)- created MR.
CHARLIE a submersible
drilling platform.
1954 - Zapata
Offshore
Company (w/
G.W. Bush) build
“jack up” rigs
1957- 23 mobile units,
11 more under
construction.
Mobility in drilling was crucial to the offshore industry’s long-term viability. The
costs of drilling exploratory or “wildcat” wells from fixed platforms, most of which
would not discover oil, were exorbitant. In 1954, the Offshore Drilling and
Exploration Company (ODECO), founded by Navy veteran Alden J. “Doc” LaBorde,
capitalized on a novel approach to the quest for mobility, using its $2 million Mr.
Charlie “submersible” drilling barge. Mr. Charlie’s hull could rest submerged on
the bottom in 30 feet of water and then be refloated and moved to other
locations, like a bee moving from flower to flower to extract nectar. Working for
Shell Oil on the industry’s first ever “day rate” contract ($6,000/day), Mr. Charlie
drilled and developed two of the Gulf Coast’s largest oil fields in East Bay, near the
mouth of the Mississippi River. “That’s a great rig you have there!” exclaimed
Shell’s New Orleans vice president to Laborde after the first well. “I can see the
day when you will need several more of them.” 13
Giant salt dome fields discovered offshore Louisiana -- such as Shell Oil’s East Bay
and West Delta, the California Company’s (Chevron) Bay Marchand and Main Pass,
Magnolia’s (Mobil) Eugene Island, and Humble Oil’s Grand Isle, all discovered in
less than 30 feet of water -- encouraged operators to move further out in the Gulf.
As ODECO expanded its fleet of submersibles, other companies such as the Zapata
Offshore Company, formed in 1954 by future president of the United States,
George H.W. Bush, experimented with new-fangled “jack-up” rigs. These ungainly
sea monsters hoisted their platforms out of the water by jacking a series of
cylindrical or truss-type legs to the bottom, taking drilling into water depths
exceeding 100 feet. By 1957, there were 23 mobile units in operation along the
Gulf and 11 more under construction.14
In the 1950s, drilling offshore was a relatively costly proposition. A Gulf Oil
executive described it as “a billion dollar adventure in applied science.” 15 It was
nevertheless astoundingly successful. During 1949-1956, the increase to domestic
reserves found offshore Louisiana and Texas was nine times the average of
6
1957 - 446 production platforms
in state and federal waters.
onshore wells. In 1956, twenty-six percent of wildcat wells struck oil and gas,
compared to 11 percent onshore. One out of 20 wildcat wells discovered fields
with more than 50 million barrels of reserves, compared to less than 1 percent of
onshore wells with the same success rate. By 1957, there were more than 250
production platforms in federal waters and 446 total in state and federal waters.
Offshore Louisiana and Texas were producing 200,000 barrels a day. This
production found a ready market in the vast refinery complexes that already
existed along the stretch of the Mississippi River between New Orleans and Baton
Rouge, in the “Golden Triangle” area (Beaumont-Port Arthur-Orange) of coastal
East Texas, and along the Houston ship channel. Offshore production accounted
for only 3 percent of total U.S. production, but it was a percentage on the rise. 16
Pushing Beyond Limits
In the late 1950s, offshore exploration in the Gulf slowed from its frantic pace of
mid-decade. Dry hole and capital costs increased significantly in water depths
beyond 60 feet. A few jack-up rigs lacked reliable stability and capsized in rough
seas. Glasscock Drilling Company’s Mr. Gus dramatically demonstrated both the
cost and operational problems of so-called “deepwater” (at that time, defined as
60 feet). After drilling a $1 million dry hole for Shell Oil in 100 feet of water in
1956, the vessel sank in transit a year later during Hurricane Audrey. Although
improved jack-up designs were in the works, insurance premiums for offshore
operations soared. 17
Hurricane Audrey, Cameron
Louisiana, 500 people dead.
Problems seemed to multiply. Hurricane Audrey caused substantial losses to
offshore infrastructure and destroyed the offshore support center of Cameron,
Louisiana, where an estimated 500 people tragically perished. Underwater
pipelines, necessary for bringing in production, were expensive and tricky to lay in
deeper water. Economic constraints in the form of a national recession in 1958,
an oversupply of crude oil due to growing imports, and declining finds in deeper
water tempered enthusiasm for new exploration. At the same time, Louisiana’s
legal challenge to the state-federal boundary offshore delayed federal lease sales
for several years beginning in 1955 (although drilling on leases obtained earlier
continued during these years). For some people in industry, this did not matter,
as they believed that offshore exploration had reached its limits. 18
7
1962 - Shell Oil tests
BLUE WATER 1 - a semi
submersible for 300
to 600 feet of water
1962 - Shell Oil subsea
wellhead to go with
BLUE WATER 1
1963 - Shell Oil’s School
For Industry, where they
shared their tech of BLUE
WATER 1 to make sure
leases would go up for auction
because of competition
Shipyards across the Gulf
began to build these ships
change in workers, sounds
shipments, use of bays, tugs
materials, shapes of materials
amount of welding, types, also
land use, zoning, roads, dredging
etc.
Others were more optimistic. In August 1962, after seven years of top-secret
research and development, Shell Oil announced it had successfully tested a new
kind of “floating drilling platform.” This mobile unit, the Blue Water 1, was a
converted submersible consisting of three large columns on each side that
connected the drilling platform to a submerged hull. Giant mooring lines kept the
vessel on position. Until then, companies had been experimenting with shipshaped vessels called “drillships” to explore in water depths beyond 150 feet, but
these could not withstand heavy wave action. Because the Blue Water 1’s hull
could be ballasted to rest safely below wave level, the vessel demonstrated a
remarkable degree of stability. Classified as the first “semi-submersible,” the Blue
Water 1 made its successful test in 300 feet of water, and it was equipped to
operate in 600 feet. To complement the new floating platform, Shell also tested
the first successful subsea wellhead completion, using remote controls because
the practical limit of diving at the time was only 150 feet. As one Shell
representative told reporters who visited the rig, “We’re looking now at geology
first, and then water depths.” 19
The semi-submersible drilling vessel redefined the marine geography of
commercially exploitable hydrocarbons. The achievement was akin to John
Glenn’s space orbit the same year, and this was only the first of many parallels
that would be drawn between space and offshore exploration. Shell’s competitors
were incredulous. Even more astonishing was Shell’s decision, in early 1963, to
share its revolutionary technology with other oil companies and contractors. At
Shell’s now legendary three-week “School for Industry,” seven companies, along
with the U.S. Geological Survey, paid $100,000 each to learn about all facets of
Shell’s “deepwater” drilling program. Shell put its work on display in order to
bring suppliers and contractors up to speed on the latest innovations and to
ensure that there would be at least some competition from other oil companies
for deepwater (beyond 300 feet) leases. Otherwise, such leases would not be
awarded at auction. The diffusion of Shell’s technology led to the construction of
purpose-built semi-submersibles at shipyards all along the Gulf Coast and enabled
the industry as a whole to move into deeper water. In his closing remarks at the
School for Industry, Douglas Ragland of Humble Oil remarked that he had never
8
seen an industry presentation that would have such a giant impact on the
future.20
1962 - Bureau of Land Management
(BLM) auctions federal offshore
acreage in the Gulf. 411 tracts ,nearly
2 million acres, up to 125 foot depths.
I think this was a 445 million windfall
for the Fed as well.
1963 - Boom year. 90
drilling operations in
progress. New
Orleans, Morgan City,
Lafayette, Beaumont,
Houston.
1968 - 14 of the 62 oil
fields discovered in US
were offshore LA, 11 of
those 14 either whole or
partially in Fed areas.
Federal government policies also helped accelerate offshore exploration and
development. Mandatory import quotas went into effect in 1959 and were
tightened in 1962. These measures protected the domestic market for higher-cost
offshore oil (average offshore wells were double the cost of onshore wells in
1965). In 1960 and 1962, sensing pent-up demand after the hiatus in federal
leasing during the late 1950s, the New Orleans BLM office auctioned large swaths
of offshore acreage in the Gulf. The industry’s response was overwhelming. In
the historic March 1962 sale, the BLM leased 411 tracts, nearly two million acres,
more than all previous sales combined. The sale opened up new areas off western
Louisiana and Texas and extended the average depth of leases to 125 feet. 21
Because so much land was put up for auction, the “cash bonus” price for the
average lease at that sale was driven down. Therefore, a broader range of
companies could now afford to participate in the Gulf. 22
Drilling on that vast inventory of leases set off one of the greatest industrial
booms the Gulf Coast had ever seen. By September 1963, nearly 90 drilling
operations were in progress. Workers flocked from around the Gulf region to take
high-paying jobs offshore or in the growing onshore support centers of New
Orleans, Morgan City, Lafayette, Beaumont, and Houston. These workers
developed fierce company loyalty, in part due to their elite blue-collar
employment status, but also from company policies prohibiting them from
purchasing products from or communicating with other companies. The work
environment was distinctly southern, reinforced by the segregation of the Deep
South and anti-unionism bred from local distrust of outside organizers and active
anti-union campaigns by industry leaders.23
Although exploratory success offshore Louisiana in the immediate years after
1962 could not match the extraordinary record of the late 1950s, the discovery
rate for large fields (100 million barrels) was impressive: 155 for offshore
Louisiana versus 3,773 for the United States as a whole. By 1968, 14 of the 62 the
large fields discovered in the United States were offshore Louisiana, and 11 of
those 14 lay either wholly or partially within federally administered areas. Total
9
1962 - 348,000 barrels
per day to 1968 at
915,000 barrels, most
from Fed areas, most
leased in 62 by BLM.
1963- BLM’s oil arm
expands
to the west coast
1961 - American Misc.
Society & National
Science Foundation project MOHOLE, a
CUSS 1 drillship with
manual dynamic
positioning, drilling cores
in 11,700 feet of water.
1962 - Shell Oil
creates EUREKA first
automatic dynamic
positioning system to
drill in 600-4,000 feet
of water. Proves oil at
the alluvial valley of
the Mississippi.
offshore production from the Gulf of Mexico rose from 348,000 barrels per day in
1962 (4.8 percent of total U.S. production) to 915,000 barrels per day in 1968 (8.6
percent of the U.S. total), most of this increase coming from federal areas,
especially acreage leased in 1962. 24
The March 1962 sale also elevated the profile of the OCS program in federal policy
circles. The $445 million in cash bonuses earned by the government at that sale
alerted many officials in Washington to the importance of OCS leases as a source
of federal revenue. “My office began receiving daily attention, rather than only on
sale day,” remembered John Rankin, head of the BLM New Orleans office at the
time, which only had about 30 employees, many of whom devoted only part of
their time to OCS matters. 25 The next year, the BLM opened an office in Los
Angeles and offered the first OCS oil and gas leases off the coasts of Oregon and
Washington. Three years later, in 1966, the BLM offered the first leases in
California’s Santa Barbara Channel. The federal OCS program took on national
scope. 26
During the 1960s, drilling innovations revitalized the offshore industry in the Gulf
and generated interest in other ocean basins. New well designs and well-logging
techniques resolved deep subsurface drilling problems and reduced well costs.
In 1961, Project “Mohole,” sponsored by the American Miscellaneous Society and
the National Science Foundation, outfitted the CUSS 1 drillship with manually
controlled dynamic positioning, which enabled it to drill cores in 11,700 feet of
water. Project Mohole was a bold effort to test the possibility of drilling to the
earth’s mantle, an “inner space” counterpart to the Kennedy Administration’s
manned outer space exploration program. The federal government terminated
funding for Mohole in 1966 long before it could reach its objective, but the project
developed important insights into the problems of drilling at extreme depths.
In 1962, Shell Oil’s research lab equipped the drillship Eureka with the first
automatic dynamic positioning system and embarked on a core-drilling program in
600-4,000 feet of water in Gulf of Mexico. Pioneering geologic work conducted in
the 1940s and 1950s had discovered that the Mississippi River over time had
created a broad alluvial valley, repeatedly entrenched and filled since at least the
Pleistocene era, and that a submarine trough with bottom-hugging currents had
transported denser-than-seawater sediment onto the continental slope and
10
1968 - Joint Oceanographic
Institutions for Deep Earth
Sampling (JOIDES)
“provided definitive proof…
of plate techtonics”
1960s - Tech
breakthroughs
abyssal plain. The Eureka’s cores confirmed for the first time that oil had been
generated in these sands. How much was still a question. Then, beginning in
1968, the Joint Oceanographic Institutions for Deep Earth Sampling (JOIDES)
project launched the famous voyage of the Glomar Challenger drillship, whose
core samples not only provided definitive proof for the theory of plate tectonics
but also gave further evidence of oil generation in extreme ocean depths. 27
Although exploratory drilling capabilities raced ahead of commercial producing
depths -- a recurring theme in the history of offshore oil – the industry
nevertheless made great advances during the 1960s in all phases of offshore
exploration and production. By 1962, magnetic sound recording and playback had
greatly enhanced the quality of reflection seismic signals used in geophysical
surveying. Later in the decade, digital sound recording and processing enhanced
the quality of seismic data and fortified geoscientists’ ability to interpret
subsurface geology. Data collected from platform instruments installed in the
mid-1950s helped engineers refine oceanographic criteria. Improvements in soil
boring techniques led to greater understanding of seabed soil mechanics and
foundations. Steel-jacket construction advanced through the use of higherstrength steel and larger installation equipment. Digital computers made possible
the three-dimensional modeling of platform jacket designs. Together, these
developments moved production operations into 350-foot water depths by
1969.28
The offshore industry’s record in the 1960s, however, was far from an unbroken
success. Toward the end of the decade, the cost of bringing in productive leases
began to outrun the price of oil, which in the United States had remained in the
$2-3 per barrel range since the end of World War II. Many of the large, easy-toidentify structures in the Gulf had been picked over and drilled. Offshore Texas
proved to be largely gas-prone, and regulated prices made natural gas less
profitable than oil. Some companies were fooled by geology into making costly
mistakes. At a federal offshore Texas lease sale in 1968, an Exxon-Texaco
partnership spent a whopping $350 million for leases that yielded nothing. 29
Perhaps this is one reason why Exxon chairman, Lee Raymond, remarked in 2002
that “the best thing ExxonMobil could have done after drilling its first well in the
Gulf of Mexico was to never drill another one again.” 30
11
Hurricanes
1961 - Carla
1964 - Hilda
1965 - Betsy
1969 - Camille
Hurricanes wreaked havoc with production. In 1961, Hurricane Carla activated
soil movements in the Mississippi Delta that destroyed a large number of
pipelines. Hurricanes Hilda (1964) and Betsy (1965) knocked out 20 platforms and
damaged 10 others, largely because platform decks were set too low for wave
heights that reached 70 feet, far exceeding earlier estimates. Hurricane Camille
(1969), a monster Category 5, passed directly over 300 platforms, most of which
survived the pounding from waves, but the storm caused violent mud slides that
wiped out three large platforms in 300 feet of water. 31
On top of the business failures and natural disasters, the sheer technological
challenges and the necessity to complete work as quickly as possible
compromised safety. Project profitability depended on how soon production
could be brought online. Drilling vessels were contracted on day-rates, increasing
time-cost pressures. Production processes were highly interdependent. Delay in
one section could cause delays elsewhere. And delays cost money. So there was
incredible time pressure to drill the wells, install the platforms, and get the oil and
gas flowing. “When I first started working, they didn’t care whether they killed
you or not!” remembered one offshore veteran. “In other words, ‘we are going to
get it done, regardless.’ There was no suing like people are suing now. Back then,
if you got hurt, they just pushed you to the side and put somebody else in.” 32
Operators and contractors alike did not overly concern themselves with safety. At
times, they even cut corners. Accident rates for mobile drilling vessels remained
unacceptably high, especially for jack-ups. Blowouts, helicopter crashes, diving
accidents, and routine injuries on platforms were all-too-common. Safe processes
and designs either did not exist or remained untested ideas in the minds of
technicians. Facilities engineering on production platforms was a novel concept.
Platforms were often stick-built with equipment squeezed or slapped together on
the deck with little concern or foresight for worker safety. Crew quarters, for
example, could sometimes be found dangerously close to a compressor building. 33
Federal oversight followed the philosophy of “minimum regulation, maximum
cooperation.” 34 OCS orders were worded very generally. Between 1958 and
1960, the U.S.G.S. Conservation Division, which at the time was the regulatory
12
agency overseeing offshore drilling, issued OCS orders 2 through 5, requiring
procedures for drilling, plugging and abandoning wells, determining well
producibility, and the installation of subsurface safety devices, or “storm chokes.”
But the Offshore Operators Committee (representing leaseholders) persuaded
regulators to dilute Order 5 to permit waivers on requirements for storm chokes.
Significantly, the orders did not specify design criteria or detailed technical
standards, and they did not have any test requirements. Companies had to have
certain equipment, but they did not have to test them to see if they worked. 35 In
general, as a 1973 National Science Foundation study of OCS issues concluded,
“the closeness of government and industry and the commonality of their
objectives have worked against development of a system of strict
accountability.” 36
Lax enforcement contributed to the lack of accountability. The U.S.G.S. freely
granted waivers from complying with orders and did not inspect installations on a
regular basis. Federal and state regulatory bodies were underfunded and
understaffed. In 1969, the Gulf region’s lease management office had only 12
people overseeing more than 1,500 platforms. Even those inspectors and
supervisors who had the appropriate training and competence often did not have
the requisite experience in the oil business and grasp of its changing technological
capabilities. “Each oil well has its own personality, is completely different than the
next, and has its own problems,” observed one consultant in 1970. “It takes good
experienced personnel to understand the situation and to cope with it.” Too
often on drilling structures, he complained, one found inexperienced supervisors,
employees who overlooked rules and regulations, the purpose of which they did
not understand, and sometimes orders from bosses to cut corners, all of which
created conditions for an “explosive situation.” “Disaster might not strike the first
time, but it will come!” 37
Disasters Strike
1969 - Union Oil
Platform 1-21 Santa
Barbara blowout.
This is the largest
blowout until the
Deepwater Horizon
Spill in 2010.
On January 28, 1969, a blowout on Union Oil Company Platform A-21 in the Santa
Barbara Channel released an 800-square-mile slick of oil that blackened an
estimated 30 miles of Southern California beaches and lethally soaked thousands
of sea birds in the gooey mess. Although the well’s blowout preventer worked, an
13
Suggestion that
Santa Barbara
spill sets stage for
NEPA
1969 - Nixon issues Moratorium
on all OCS projects in Cali.
inadequate conductor and surface casing design allowed the hydrocarbons to
escape through near-surface fractures. Union Oil had received a waiver from the
U.S.G.S. to set casing at a shallower depth than that required by OCS Order 2,
highlighting the lack of accountability that had come to characterize offshore
operations.38 The 11-day blowout spilled an estimated 80,000 to 100,000 barrels
of oil 39—the largest offshore drilling accident in American waters until the
Macondo blowout. It generated intense opposition to offshore oil in California,
but the fallout also reverberated nationally, setting the stage for the passage of
the National Environmental Policy Act (NEPA), a symbol of the growing strength of
the national environmental movement, as well as a host of other increasingly
demanding environmental protection laws throughout the 1970s. 40
Offshore operators suddenly faced a potentially hostile political and regulatory
climate. Ten days after the accident, Secretary of the Interior Walter Hickel, with
the support of President Richard Nixon, issued a moratorium on all drilling and
production on offshore rigs in California waters. On February 11, 1969, Nixon
directed his Presidential Science Advisor, Dr. Lee A. DuBridge, a physicist, to
assemble an advisory team and recommend measures to restore the affected
beaches and waters. Nixon also requested that DuBridge “determine the
adequacy of existing regulations for all wells licensed in past years now operating
off the coast of the United States [and] to produce far more stringent and
effective regulations that will give us better assurance than the Nation now has,
that crises of this kind will not recur.” With DuBridge at his side, Nixon remarked
three months later, when unveiling his new Environmental Quality Council that
“The deterioration of the environment is in large measure the result of our
inability to keep pace with progress. We have become victims of our own
technological genius.” 41
The Department of the Interior acted swiftly. In April, Secretary Hickel completed
a preliminary assessment of the leases affected by the moratorium and allowed
five of the 72 lessees to resume drilling or production. In August, the Department
of the Interior issued completely revised OCS Orders 1-7 – the first update since
the orders were established – with more specific requirements about company
plans and equipment for prevention of pollution and blowouts. It also issued two
new Orders (8 and 9) pertaining to the installation and operations of platforms
14
and pipelines. These were the first rules in which the Department claimed
authority to prohibit leasing in areas of the continental shelf where environmental
risks were too high. 42
1970 - Chevron Platform C
blew out and caught fire
in Main Pass Block 41 GOM
1970 - Chambers and
Kennedy platform, explosion,
9 killed.
1970 - Shell Oil
platform B blow out, 4
dead, 37 injured, in
South Timbalier Block
26.
The industry protested the new OCS regulations, but calamities in the Gulf
undermined its case. In February 1970, Chevron’s Platform C in Main Pass Block
41 blew out and caught fire. The spill forced a postponement of a federal lease
sale, damaged wildlife, and drew a $31.5 million suit against the company by
Louisiana oyster fisherman and a $70 million suit from the shrimp fishermen. A
U.S. District Court also fined Chevron $1 million for failing to maintain storm
chokes and other required safety devices, the first prosecution under the 1953
OCS Lands Act. The Justice Department proceeded to obtain judgments against
other major oil and gas companies for similar violations. Then in May, explosions
and fire broke out on a Chambers and Kennedy platform 12 miles southeast of
Galveston, Texas, killing five workmen and four others on a workboat moored
below the platform. The explosion erupted when an arc-welding operation,
without adequate supervision or safety precautions, ignited vapors between two
crude oil storage tanks. Finally, in December, Shell Oil Company suffered a major
blowout on its giant Platform B in the Bay Marchand area (South Timbalier Block
26), killing four men and seriously burning and injuring 37 others. Investigators
attributed the cause of the accident to human error resulting from several
simultaneous operations (i.e. drilling, production, and wireline operations) being
performed without clear directions about responsibility. It took 136 days to bring
eleven wild wells under control, at a cost of $30 million. The failure or leaking of
subsurface-controlled storm chokes contributed to the size of conflagration. 43
In the wake of these disasters, the government further strengthened its regulatory
program. The Department of the Interior again revised and expanded OCS orders
to mandate new requirements: surface-controlled storm chokes; the testing of
safety devices prior to and when in use; more careful control of drilling and casing
operations; prior approval of plans and equipment for exploration and
development drilling; and updated practices and procedures for installing and
operating platforms. To enforce the new regulations, the U.S.G.S. tripled its force
of inspectors and engineers, ceased using industry furnished transportation for
15
inspection purposes, and introduced a more systematic oversight program based
on a newly developed Potential Incidents of Non-Compliance (PINC) list. 44
The industry finally got serious about safety and environmental protection. The
Offshore Operators Committee and the American Petroleum Institute’s Offshore
Safety and Anti-Pollution Equipment Committee worked closely with the U.S.G.S.
not only in advising changes in the OCS orders but in drafting, in a short period of
about six months, a new set of API “recommended practice documents” for the
selection, installation, and testing of safety devices, as well as for platform design.
The major offshore operators revamped personnel training for offshore
operations with the aid of the API, universities, and suppliers. They also formed
an organization called Clean Gulf Associates to upgrade oil-spill handling
capabilities. 45 In addition, the industry’s annual Offshore Technology Conference
(OTC), first held in 1969, became an important forum for publishing and sharing
technical information that led to safer designs and operations.46
On the mobile drilling front, certifying agencies issued new standards and
guidelines. In 1972, Lloyd’s Register of Shipping published for the first time its
“Rules for the Construction and Classification of Mobile Offshore Units.” In 1973,
the American Bureau of Shipping revised its “Rules for Building and Classing
Offshore Mobile Drilling Units,” first issued after the 1967 Sea Gem disaster in the
U.K. sector of the North Sea, based on studies that subjected the wide range of
mobile drilling designs to more rigorous tests. These rules were then incorporated
into the Coast Guard’s regulatory requirements for mobile offshore drilling units
(the Coast Guard had jurisdiction over vessels in transit) and the OCS Order No. 2
pertaining to “Drilling from Fixed Platforms and Mobile Drilling Units,” enforced by
the U.S.G.S. 47
The offshore oil industry’s safety record in the Gulf improved significantly after the
introduction of new regulations and practices. Both the reported incidence and
rate of fatalities and injuries in the OCS decreased. 48 The rate of fires and
explosions also declined. 49 During the 1970s and 1980s, the industry did not
achieve a significant reduction in blowout frequency, largely because of serious
limitations in methods for controlling shallow gas influxes. However, there was a
16
sharp drop in the number of catastrophic blowouts and a significantly lower
number of casualties and fatalities associated with them. 50
Design and equipment problems were steadily being solved. However, reducing
accidents caused by human error, poor safety management, or simultaneous
operations continued to be a vexing challenge for the industry.
Constrained Expansion
As new regulations brought more caution to OCS development, countervailing
forces emerged to speed it up. Domestic oil supply could not keep up with
demand. In the postwar period, Americans’ consumption of petroleum climbed
steadily for more than three decades. Most of that consumption, then as well as
today, occurred in the transportation sector. Auto sales soared from about 1
million annually at the end of the war, to 6.7 million in 1950, to 9 million in 1965.
The construction of the federal interstate highway system, authorized in 1956, laid
tens of thousands of miles of roadway across the nation, stimulating the auto
craze and the massive demographic shift toward suburbanization.51 American
consumption of motor gasoline rose from 243 gallons per capita in 1950 to 463
gallons per capita in 1979. 52
Project Independence,
Oil Industry spends
2.17 Billion Dollars on
new GOM OCS sales.
1975 - Shell finds
deepwater oil in Mississippi
Canyon, starts the “flex
trend”
U.S. oil production peaked, however, in 1970. Along with the OPEC oil embargo of
1973 and consequent skyrocketing price of oil products, this event spurred the
quest to develop new offshore reserves. With oil prices tripling to $10 per barrel,
oil companies found they could justify more expensive offshore drilling and
development. Under the mandate of “Project Independence,” the Nixon
Administration announced a dramatic increase in the pace of leasing in the Gulf
and a resumption of OCS sales off the Atlantic, Pacific, and Alaskan coasts. At the
March 1974 federal lease sale of offshore Louisiana acreage, the industry spent a
record $2.17 billion in cash bonuses for leases covering 522,000 acres, including a
few tracts ranging beyond 1,000-foot depths. 53
In June 1975, Shell made a monumental discovery on one of those new leases.
Shell geophysicists had employed an innovative seismic interpretation technique
called “bright spot” to lead drillers to an attractive prospect code-named Cognac,
17
in 1,000 feet of water in the Mississippi Canyon, not far from the mouth of the
great river. The drilling uncovered an estimated 100-million-barrel reserve. 54
Cognac pioneered other discoveries in what would come to be known as the “Flex
Trend,” an area in the Gulf that reaches just beyond the edge of the continental
shelf, where there is a flex in the seafloor. The Flex Trend would be the world’s
first true oil play in 1,000-foot water depths, the modern definition of
deepwater. 55
Developing Cognac was one of the most technologically sophisticated efforts ever
attempted offshore. When Shell purchased its leases, the company did not yet
have a design concept for deepwater production. Barges were not big enough to
launch a 1,025-foot steel jacket in one piece. Therefore, following on a precedent
established by Exxon to install its “Hondo” jacket in 850 feet of water in the Santa
Barbara channel in 1976, Shell chose to build the Cognac structure in three pieces
and assemble or “stack” them vertically in place. The complex, nerve-wracking
installation inflated total development costs to nearly $800 million. But Cognac
was both a technical and commercial success. It won the American Society of Civil
Engineers (ASCE) 1980 award for “Outstanding Civil Engineering Achievement,”
the first ever received by an oil company. Production commenced in 1979, just as
the supply shock caused by the Iranian Revolution drove the price of oil to nearly
$40 per barrel. 56
Is it that Chevron has a
piece of garden banks
or they have the whole thing?
This is were the rig was in
Armageddon.
Along with Hondo and major developments in the North Sea pioneered by Phillips,
Conoco, and British Petroleum, Cognac paved the way for truly enormous,
offshore engineering-construction projects. North Sea experience using improved
materials, full-size tubular joint testing, data from field measurement programs in
500-foot waters, and ever-larger construction equipment assisted Gulf operators
in moving rapidly up the learning curve. In 1976, Brown & Root and J. Ray
McDermott opened giant new construction yards at Harbor Island, Texas, near
Corpus Christi Bay, to accommodate the assembly and load-out of deepwater
structures. In these yards, they built jackets lighter and cheaper than Cognac and
launched them in single pieces. In the late 1970s, Brown & Root built a 700-foot
structure for Chevron’s Garden Banks field and a 650-foot jacket for Atlantic
Richfield (Arco). In 1980-1981, McDermott built two platforms for Union Oil in the
1,000-foot waters of the East Breaks area, 100 miles south of Galveston. Union
18
named its platforms “Cerveza” and “Cerveza Light” to emphasize their beerbudget cost savings compared to Cognac. During 1979-1983, Brown & Root built
and installed a novel “guyed tower” for Exxon in 1,000 feet of water just to the
southwest of Cognac. 57
labor probelms
During the 1970s boom, the composition of the labor force in the offshore
industry began to change. Demand for labor outstripped supply. Local chambers
of commerce and companies devised new recruiting schemes, such as driving vans
through the poor neighborhoods of New Orleans to gather able-bodied young
men, load them on boats, and ship them offshore. The national recession of the
1974 attracted workers from around the country, especially from the declining
industrial manufacturing regions of the upper Midwest. Civil rights laws and
federal guidelines forced the industry to begin hiring women and racial minorities
for offshore work. Highly skilled “Cajun mariners,” many with little formal
education, became increasingly vital for providing specialized boats and vessels to
transport people, equipment, and supplies to offshore facilities. At a moment
when Cajunism was experiencing a cultural revival, the large numbers of Cajuns
who obtained well-paying jobs and the few who achieved wealth and prominence
in the industry strengthened the bonds between southern Louisiana and offshore
oil. 58
Desperate for new reserves after the nationalization of foreign holdings in the
1970s, and caught between rising crude prices and declining onshore production,
U.S. oil firms increasingly cast their sights offshore. By the late 1970s, however,
they found their options narrowing, due to economic, geologic, and political
factors.
Bonuses bids on
OCS bids
In the Gulf of Mexico, oil operators encountered both economic and geological
limits. Bonus bids soared beyond the estimated value of the oil that might be
discovered and produced. The September 1980 sale in New Orleans, for example,
brought in $2.8 billion in cash bonuses, shattering all previous records. “I got a
three-letter description: W-O-W!” exclaimed John Rankin, head of the New
Orleans BLM office, after the sale. Shell’s executive vice president had a similar
reaction, but with a different emphasis: “The bidding just got ridiculous,” he said.
“The whole business got ridiculous!” During the 1970s, the ratio of bonus paid per
19
barrel of oil equivalent discovered among the top companies had increased by a
factor of four or five, undermining the economics of deepwater.59 Furthermore,
initial per-well production rates from some of the early producing fields in the
deepwater Flex Trend were disappointing, and many exploration managers in the
industry believed that after twenty-five years of development only lean prospects
remained in the Gulf of Mexico. The best hope for increasing national reserves,
they concluded, was from other parts of the U.S. outer continental shelf (OCS). 60
Political opposition to offshore development progressively restricted drilling along
most of the Pacific OCS and, by the 1980s, the Atlantic OCS as well. After the
Santa Barbara blowout, outraged citizen groups formed, such as Get Oil Out!
(GOO), “to protect California from further oil development and exploitation.” 61
One of GOO’s founders was so angered by the sight of platforms in the channel,
he suggested, “we should go out there and blow the goddamn things up.” 62 Allied
with leaders in state and local government, GOO failed to stop a 1975 sale, but
this failure only strengthened the anti-oil movement as a political force.
At the national level, Nixon’s Project Independence initiative elicited reaction in
the form of proposals to amend the OCS Lands Act. Concerned politicians from
coastal states saw OCS decision-making as a closed-door process involving only
the Department of the Interior and industry. This denied affected states a
mechanism for addressing the glaring problem with the OCS program revealed by
Santa Barbara: that the benefits of OCS development were distributed nationally,
while the costs were often concentrated locally. 63 After four years of debate,
Congress finally responded to these concerns by passing the OCS Land Act
Amendments of 1978. These amendments introduced a five-year lease schedule
and provided for phased decision-making with NEPA environmental impact
studies (EIS) at each stage of the leasing and development process. The
amendments also created a new environmental studies program and opened up
avenues for state and local participation in OCS decision-making.64
After passage of the 1978 Amendments, the system was immediately put to test
at the proposed lease Sale 53 in the Pacific. Unlike previous sales there, which
had been concentrated in one geographic region, Sale 53 called for nominations of
tracts from the Santa Barbara Channel to the Oregon state line. A bevy of interest
20
groups formed an umbrella organization, the Coalition on Lease Sale 53, to stop
the sale. At the same time, opposition gathered against the five-year leasing
schedule proposed by Interior, leading to court challenges by the states of
California and Alaska. They argued that the schedule violated Section 18 of the
1978 Amendments, which mandated that the laws, goals, and policies of the
affected states be considered in the plan. After protests escalated into huge
public rallies in 1980, Secretary of the Interior Cecil Andrus withdrew the entire
northern and central California portion of the sale. “California thought the coast
was saved,” recalled Richard Charter, a leader of the Coalition on Lease Sale 53.65
Good James Watt
quote on lease sales
1980
But this would not be the last of it. In 1980, the issue passed into the hands of a
new Republican president, Ronald Reagan, and his secretary of the interior, James
Watt, a leader of the so-called “Sagebrush Rebellion” of western states
conservatives who were dedicated to throwing open federal lands to resource
development. “If the press is here,” Watt announced defiantly at a National
Ocean Industries Association meeting early in Reagan’s first term, “I hope they will
write this down. We will offer one billion acres for leasing in the next five years.
We will not back away from our plans to have 42 lease sales.” 66
Beyond the Shelf
Rising lease bonuses still did not deter major companies (such as Chevron, Exxon,
Mobil, and Amoco), along with some of the larger independents (such as Pennzoil,
Union, and Tenneco), from drilling and developing fields in the deepwater Flex
Trend. But discoveries could not offset overall production declines in the Gulf. Oil
production on the shelf had peaked in 1972 at just above 1 million barrels per day;
by 1978, it had fallen below 800,000 barrels per day. Few companies and indeed
few people in the industry believed that deepwater could revive the Gulf’s
fortunes. Discoveries in the Flex Trend play were relatively small with
discontinuous sands and fairly low flow rates. 67 Most oil and gas produced in the
Gulf still came from shallow water, despite declining overall production there. In
1970, the average production-weighted depth in the Gulf was just 100 feet, and by
1980 it was still below 200 feet.68 After examining average field sizes and the
state of production technology, many managers had concluded that there would
never be economic developments more than 60 miles from shore. Upon studying
21
unproductive wells in shallow water that companies had drilled deep to test the
older sediments laying beneath productive shelf reservoirs, other experts became
convinced that significant oil-bearing sands would never be found beyond the
shelf. In the late 1970s and early 1980s, “never” was the conventional wisdom
about deepwater. “But what conventional wisdom really tells you,” as one Shell
geophysicist later explained, “is that you just don’t know what you don’t know.” 69
1980: new geological
and production realities
in GOM
Some geologists were finding clues that made them question the conventional
wisdom. Combining information from deepwater cores with a regional seismic
survey acquired and processed by Petty-Ray Geophysical in 1977, scientists from
industry and academia had begun to piece together a regional picture of
deepwater geology in the Gulf. This picture showed that massive salt pillars, or
diapirs, had squeezed up from the mother layer of salt called the Louann sheet.
The Louann was deposit during the Jurassic period beginning 165 million years ago
when cycles of seawater rushed into and evaporated from a slowly forming Gulf of
Mexico, leaving behind layers of salt that grew as thick as 30,000 feet in places. As
the diapirs pinched up, sandstones overlaying the salt slowly subsided, forming
cup-shaped “mini-basins” featuring many different kinds of configurations for
trapping oil. These sandstones were named “turbidites” because they had been
deposited when ancient underwater rivers called turbidity currents channeled
huge volumes of sediment onto the continental margin. The structural anomalies
in these mini-basins looked similar to productive features on the shelf, but the
spotty seismic coverage made these anomalies speculative at best. Meanwhile,
Shell Oil, always the leader in frontier exploration in the Gulf, had drilled a number
of oil discoveries along the shelf margin in similar rocks. Deltaic and turbidite
reservoirs on the shelf were highly faulted and required many wells to develop.
Turbidites in deepwater, by contrast, were potentially much larger and less
faulted, thus requiring fewer wells. Theory held that they would also be unusually
porous due to the sifting of the sands carried by turbidity currents over long
distances and that they might be more tightly sealed and under higher pressure. 70
During 1978-1980, hoping to test its theories about the Gulf’s regional geology,
Shell nominated deepwater tracts for auction. But no other companies seconded
their nominations, so the BLM never selected the tracts for sales. Then, a major
policy shift provided a new opportunity to look more closely at deepwater geology
22
and piqued the interest of a few companies other than Shell. In 1981, Interior
secretary James Watt honored his pledge to lease a billion acres of the OCS by
announcing a new system of “area-wide” leasing offshore. This policy put into
play entire planning areas (e.g., the central Gulf of Mexico) up to 50 million acres,
rather than rationing tracts through a tedious nomination and selection process as
in the past. Oil companies could bid on any tract they wanted in a lease sale for a
given planning area, rather than having to choose from a limited number of
carefully selected ones. AWL thus gave them access to far greater offshore
acreage at much cheaper prices. At the time, there were compelling reasons to
proceed this way in the Gulf of Mexico, where oil companies had long operated,
where there was established infrastructure, and where there was abundant
geological information that could be put to more flexible use under a more open
system. The introduction of AWL also coincided in 1982 with the merging of the
BLM OCS program and the U.S.G.S. Conservation Division into a new agency, the
Minerals Management Service (MMS). The purpose of creating the new agency
was to better manage oil and gas royalty revenues from federal and tribal lands
and to create what Watt called “a more efficient leasing program.” 71
1984: court ruling 5-4
in favor of Fed
Gov and lease sales
The expanded program for OCS leasing drew sharp criticism from environmental
groups, who were alarmed by what they considered a fire sale of offshore
territory. Ignoring, minimizing, and even mocking their concerns, James Watt
forged ahead with his one-size-fits-all, “market friendly” approach. He restored
the controversial Sale 53 off California to its original offerings and pushed for the
first area-wide sale in the eastern Gulf, which included tracts south of the 26th
parallel near the Florida Keys, opposed by majority of the state’s residents. Watt
withdrew the contested Sale 53 offerings after a federal court ruled that the sale
did not meet consistency requirements under the Coastal Zone Management Act
of 1972. However, in January 1984, the U.S. Supreme Court overturned lower
courts and ruled by a slim 5-4 vote that the sale itself did not cause impacts and so
the Federal Government could ignore the objections of affected states in moving
ahead with lease sales. 72
Stymied in the courts, coastal states and environmental organizations brought
pressure in Congress. In 1982, the House of Representatives began writing
provisions into yearly appropriations bills that prohibited the expenditures of
23
funds for leasing activities, first, off the shores of California, and then off New
Jersey, Florida, and Massachusetts. Circumventing the decision-making process
within Interior, Congress in the 1980s increasingly shut down leasing on the OCS
outside the western and central Gulf of Mexico. 73
1986: OCS lands act
ammended to share
money between
fed and state.
After the beleaguered Watt left Interior in October 1983, his successor, William
Clark, scaled back the 1982 leasing plan but moved forward with area-wide leasing
in the Gulf of Mexico. Some officials from Gulf Coast states, such as
Representative John Breaux (D-LA), were troubled by the size of the leases being
offered. These officials feared that placing so much acreage on the market would
dilute tract values, at the very moment they were attempting to obtain a share of
federal OCS revenues for their states, in part to compensate for the offshore
industry’s contribution to the accelerating erosion of the state’s coastal
wetlands.74 The Mineral Leasing Act of 1920 granted states 37.5 percent of
mineral leasing revenues from onshore federal lands within their borders
(increased to 50 percent in 1976), but the OCS Lands Act of 1953 made no
provision for sharing revenues with states adjacent to oil and gas production in
federal offshore waters. Reagan and Clark resisted this push by the states for
revenue sharing, viewing the billions earned from leasing as a painless way to
stem the exploding budget deficit. In April 1986, after considerable political
maneuvering and lawsuits filed by Louisiana and Texas, the White House and
coastal states reached an agreement for sharing a relatively small portion of
revenues derived from the three-mile-wide strip of federal lands lying
immediately outside the offshore territory owned by the states. 75
As the sideshow over federal-state revenue sharing played on, Interior pressed
ahead with area-wide leasing in the Gulf. Oil companies responded to the new
system by bidding aggressively for attractive blocks on the shelf while making a
number of speculative bids on acreage ranging into 3,000-feet depths beyond the
edge of the shelf. “While rigs stood idle in the inshore shallows of the Gulf of
Mexico,” reported Newsweek on the first sale under the new system, “more than
1,200 oilmen gathered last week in New Orleans’ Superdome to testify to their
faith in the health of their industry.” 76 The May 25, 1983 sale harvested a record
$3.47 billion in high bonus bids. But with so much acreage put up for sale, the
average price per acre was only about $1,000, three to four times lower than the
24
average in the 1979-1980 sales. In subsequent sales, held in 1984-1985, bonuses
plummeted to under $500/acre, as the industry staked greater claims in
deepwater. All told, in seven lease sales held during 1983-1985, the MMS leased
2,653 tracts, more than had been leased in all the federal sales since 1962
combined. About 600 of these tracts lay in deepwater beyond 1,000 feet. 77
1982: Shell Oil
Discover Seven Seas
6,000 feet deep in
the Bullwinkle prospect
Shell Oil acquired the lion’s share of deepwater tracts at the March 1983 sale and
immediately started drilling. In 1982, it had contracted with Sonat Offshore
Drilling to lease the drillship, Discoverer Seven Seas, one of the few vessels in the
world rated for 6,000-foot depths. Shell then spent more than $40 million to
extend the vessel’s depth capability with a larger marine riser, enhanced dynamic
positioning, and a new remote-operated vehicle (ROV) to enable sophisticated
work where humans could not venture. In October 1983, the Seven Seas made a
major discovery at Shell’s Bullwinkle prospect. The discovery established what
came to be known as the deepwater “Mini-Basin Play,” which targeted the
turbidite sandstones in the basins flanking the salt structures. 78
In the next Central Gulf area-wide sale, in April 1984, many different operators
jumped in to compete for deepwater tracts. This prompted Shell to move quickly
in deploying the Shell America, a $45 million custom-designed, state-of-the-art
seismic vessel that provided company geophysicists with high-quality, proprietary
seismic data. Armed with these new data and other intelligence gained from
drilling its 1983 leases, Shell dominated the May 1985 Gulf sale, winning 86 of 108
tracts on which it submitted bids, in water depths ranging out to 6,000 feet. For
Shell, pushing deeper was an imperative for its operations in the United States, as
onshore reserves continued to decline. 79 “Exploration has been called a poker
game,” explained one Shell Oil official. “But there’s more to it than that. In this
game, we don’t have chips or coins or dollar bills that can change hands over and
over again. We’re dealing with a declining resource base, and every barrel we find
is never going to be found again.” 80
The Era of Uncertainty
The long cycles of oil exploration and development do not always align well with
the shorter cycles of the economy. Just as Shell bet heavily on deepwater, the
25
1908s: bust explained concisely
severe recession of 1981 further depressed falling oil demand. For the first time
in 34 years, U.S. oil consumption hit a plateau and began moving downward. 81
The now “forgotten victory” of energy conservation and efficiency measures
passed in the mid-1970s, in response to historically high oil prices, reversed the
long trend in the increasing petroleum intensity of the U.S. economy. During
1985-1986, oil prices collapsed down to $10 per barrel, as both OPEC and nonOPEC producers—principally Mexico and the North Sea—saturated the market
with crude. Combined with the rising price of lease bonuses (before area-wide
leasing) and disappointing finds, the recession sucked the wind out of drilling in
the Gulf of Mexico. Expensive development projects in the Gulf of Mexico were
canceled or shelved. The construction of mobile drilling vessels and other kinds of
offshore servicing equipment, which was a major part of heavy industry along the
Gulf Coast, fell sharply. Some analysts began to write off the Gulf of Mexico as the
“Dead Sea.”
The depression afflicting the oil industry in the United States spread to other
sectors of the economy, such as real estate and banking. Once flourishing coastal
communities entered a period of economic decline, as tax revenues from
companies serving the oil industry evaporated. Unemployed oil field workers
either transitioned into new trades, or they migrated out of southern Louisiana in
search of better opportunities. This human and capital flight marked the
beginning of what one scholar called “the inevitable disassembly of the offshore
system and its onshore support network for the Gulf of Mexico.” 82
1988: Shell builds 500 Mill$
platform
The offshore projects that went forward faced intimidating challenges. The
Bullwinkle find was encouraging, but the bright spot game Shell was playing in
seismic interpretation also threw the company some curves, leading to some
expensive dry holes in excess of $10 million. On the production side, many
economic and technical questions remained about how to produce deepwater
discoveries. The anticipated reservoir model -- characterized by large, continuous
sands and high-flow rates -- was still unconfirmed. 83 Moreover, no consensus had
been achieved about new production concepts. Shell developed Bullwinkle by
installing, in May 1988, a massive $500 million fixed platform, 162 stories high,
taller than Chicago’s Sears Tower (now the Willis Tower), the tallest building in the
26
world at the time. But the Bullwinkle platform was the largest and last of its kind.
The scale and costs of constructing anything bigger were simply prohibitive. 84
Moving deeper would require alternative methods of producing, using subsea
wells, tension-leg platforms, or floating production systems. Operators had put
subsea wells to practical use in the North Sea, but they were still extremely
expensive. The tension-leg platform was an innovative concept consisting of a
production facility situated on a floating hull held in place by long tendons that
kept the hull from bobbing like a cork but allowed a degree of side-to-side motion.
In 1984, Conoco installed the first design of this type in the North Sea’s Hutton
field in 485 feet of water, and in 1989 the company placed its Jolliet mini-tensionleg platform in 1,760 feet of water in the Gulf.85 But tension-leg platforms would
have to be scaled up for major projects in deepwater. In 1987-1988, Placid Oil
(owned by the personal trusts of the oil scions Nelson, Herbert, and Lamar Hunt)
developed a field in 1,500 feet of water with a floating production facility
converted from a semi-submersible drilling vessel. But Placid soon abandoned the
development, sold the semi-submersible, and sought Chapter 11 protection from
creditors, a story that was profiled in a Texas Monthly feature, “Lifestyles of the
Rich and Bankrupt.” 86
The deepwater costs were matched by the safety and environmental risks. In
1985, an Office of Technology Assessment study of Arctic and deepwater oil
drilling highlighted the “special safety risks” of “harsh environments and remote
locations.” It identified “a need for new approaches to preventing work-related
injuries and fatalities in coping with new hazards in the hostile Arctic and
deepwater frontiers.” It also presciently warned of the glaring deficiencies in
safety oversight offshore, observing that “there is no regulatory requirement for
the submission of integrated safety plans which address technical, managerial,
and other aspects of offshore safety operations.” 87
1979-1988L industrial
energy related disasters
The study was published during a period when catastrophic accidents offshore
and in other hazardous industries around the world were occurring at an alarming
rate. First, in 1979, came the partial meltdown of the Three Mile Island nuclear
plant in Pennsylvania. Also that year, Pemex’s Ixtoc 1 blowout in Mexico’s Bay of
Campeche released 3 million barrels, the industry’s largest spill before Macondo in
27
2010. In 1980, the Alexander Kielland accommodation platform in the North Sea
capsized, leaving 123 dead. In 1982 the Ocean Ranger semi-submersible platform
sank off Newfoundland, killing 84 people. In 1984, Union Carbide’s pesticide plant
in Bhopal India leaked toxic gas and chemicals, resulting in thousands of deaths.
Then, in 1988, 167 workers perished when Occidental Petroleum’s Piper Alpha
production platform in the North Sea exploded. Both the chemical and nuclear
industries in the United States adopted new approaches to safety process
management, overseen by reformed regulatory agencies. Meanwhile, regulators
in the U.K., Norway, and Canada overhauled their oversight of offshore oil. The
offshore industry in the United States became more attuned to safety in the wake
of these disasters and after a 1989 explosion at South Pass 60 the Gulf of Mexico
that killed seven workers. However, changes in offshore safety management did
not happen across the board, and the Department of the Interior’s Minerals
Management Service did not implement mandatory regulations on safety (see
chapter 4).
As the Office of Technology Assessment’s study indicated, deepwater was not the
only frontier that captured the industry’s interest. In the 1980s, companies also
had their sights set on Alaska. In the early 1980s, they believed the Arctic region
held the highest resource potential of anywhere in the United States. It was big
structure country. Since the 1960s, major firms had produced oil from Alaska’s
Kenai Peninsula and Cook Inlet. In 1977, the massive onshore Prudhoe Bay field
on the North Slope started pumping oil through the Trans-Alaska Pipeline. Many
explorers expected to find the next great oil frontier to the north of Prudhoe Bay,
in the Bering, Beaufort, and Chukchi Seas. Although the industry lost a
contentious struggle to gain access to the Bering Sea’s Bristol Bay, a place of
stunning natural beauty and home to the world’s largest commercial salmon
fishery, they did win the right to lease and drill in the Beaufort and Chukchi Seas. 88
Everywhere operators drilled in the federal waters off Alaska, however, they came
up empty. Either they found no source rocks or the deposits they did find were
not large enough at that time to turn a profit in the Arctic’s forbidding
environment. The symbol of the industry’s failure in Alaska was a prospect called
Mukluk in the Beaufort Sea. In 1982, a number of companies spent $1.5 billion on
Mukluk leases, only to find that the oil the giant structure had once contained had
28
leaked out long ago in geologic history. “We drilled in the right place,” observed
the president of Sohio. “We were simply 30 million years too late.” 89 After some
futile efforts to explore in the Chukchi Sea in the midst of slumping oil prices, the
industry temporarily lost its craving for the Arctic. Furthermore, the public
relations fallout from the Exxon-Valdez oil spill in 1989, which resulted in
congressional and presidential moratoria on leasing in Bristol Bay, contributed to
the industry’s fading interest, for the time being, in offshore Alaska. 90
The mid-1980s collapse in oil prices also ruined many companies’ appetite for the
deepwater Gulf of Mexico. Leasing slowed considerably as some operators scaled
way back or pursued different opportunities. Others, led by Shell Oil, chose to
take a longer-term view of the deepwater play. The failures in Alaska helped
reinforce this choice. Additional reinforcement came in 1987, when the MMS
dropped the minimum bid requirement for deepwater tracts from $900,000 to
$150,000 – enabling companies to lock up entire basins for 10 years for only a
couple million dollars. 91 The National Gas Wellhead Decontrol Act of 1989 led to
swift declines in natural gas prices, hurting producers on the Gulf’s natural gasprone continental shelf and impelling some companies into the more oil-prone
deepwater. During the next five years, the industry acquired 1,500 tracts in
deepwater, despite persistently flat oil and gas prices. 92
1989: Shell discovers
oil in the GARDEN BANKS
AREA 136 MILES OFF
COAST.
Another reason for the upsurge in deepwater leasing was Shell Oil’s
announcement, in December 1989, of a major discovery at a prospect called
Auger, located in the Garden Banks area 136 miles off the Louisiana coast. Two
years earlier, Global Marine’s new, giant semi-submersible, the Zane Barnes,
struck oil for Shell after drilling through 2,860 feet of water and another 16,500
feet beneath the seafloor. Shell kept the discovery quiet as it delineated the
extent of the field, which turned out to be huge, containing an estimated 220
million barrels of oil equivalent, the company’s third largest offshore discovery in
the Gulf. Underpinning Shell’s decision to go forward with Auger was the
discovery of relatively high flow rates from wells drilled into turbidite sands at
Bullwinkle, perched along the margin of the continental shelf. On shallower parts
of the shelf, a good well produced 1,000 barrels per day and an excellent well
produced 2,000 barrels per day. Shell’s engineers found that they could open
Bullwinkle’s wells to 3,500 barrels per day without any attendant loss in bottom-
29
hole pressure. If Auger had similar flow rates, the field could be profitably
developed, even if its water depth was more than twice Bullwinkle’s. Few people
knew that Auger was only one of a number of deepwater discoveries made by
Shell in the mid- to late-1980s. But for an uncomfortable period of time, the
company was not sure what to do with them all. After Bullwinkle demonstrated
the production potential of turbidites, Shell formulated an ambitious strategy to
launch a series of major platforms. 93
A gloomy economic outlook, however, tempered the euphoria within Shell that
greeted the Auger discovery and the production breakthrough at Bullwinkle. Oil
prices had not rebounded, and Shell’s net income was sinking. The company had
just spent $300 million to drill a succession of dry holes offshore Alaska. The
projected cost of developing Auger was in excess of $1 billion. In appraising the
next prospect, code-named Mars, Shell’s exploration managers looked for ways to
save money and offload some of the financial risk. In 1988, they brought in British
Petroleum (BP) as a partner with a 28.5 percent interest in Mars, a tactical
decision that would later come back to haunt Shell. At the time, Mars seemed like
a risky project, with low probability for a major discovery. Furthermore, BP posed
little threat. The company had been kicked out of Iran and Nigeria in 1979 and
was struggling along with a bloated management structure, poorly performing
global assets, and uninspiring leadership. Shell viewed BP’s role in Mars as merely
a banker.94
1989+: shells mar
feild w/ bp as
pasrtner
All that changed in 1989, when Sonat’s Discoverer Seven Seas drilled into Mars.
The field, located due south of the mouth of the Mississippi River, lay in nearly
3,000 feet of water under leases acquired in 1985 and 1988 for the small sum of
$5.3 million. With BP on board as a partner, Shell shot more seismic, including a
3-D survey (see below), which revealed huge potential for the prospect. The
discovery well encountered multiple oil and gas bearing layers stacked on top of
each other over several hundred meters. Mars was more than twice the size of
Auger -- the largest field discovered in the Gulf of Mexico in 25 years. For Shell,
Mars promised a big payoff for large bets on deepwater leases. For the industry,
Mars confirmed the deepwater Mini-Basin trend in the Gulf as a bona fide play.
For BP, Mars allowed the company’s managers, engineers, and scientists to go to
30
school on Shell’s deepwater technology. Perhaps just as importantly, according to
BP’s chief in the United States, “Mars saved BP from bankruptcy.” 95
3D SEISMIC STATS
WILDCAT MAKES FROM 30 TO 70
80-90: NEW
DRILLING TECH
During the next several years, major oil companies—and even more significantly,
contractors in the offshore-service industry—propelled the evolution of
technology in innovative new directions. The 1970s revolution in digital, threedimensional (3-D) seismic imaging, pioneered by Geophysical Services Inc. (GSI),
and the 1980s move to computer workstations, which enabled faster processing
of the massive amount of data generated in a 3-D survey, dramatically enhanced
the industry’s accuracy in locating wells for field development—a critical factor
when drilling a single well in deepwater could cost as much as $50 million. In
1989, only 5 percent of the wells drilled in the Gulf relied on 3-D; in 1996, nearly
80 percent did. Companies acquired the majority of that data between 1990 and
1993.96 Increasingly, operators relied on 3-D seismic not only for field
development, but for wildcat exploration as well. Shell demonstrated the value of
using 3-D for exploration at Mars. By many accounts, 3-D seismic boosted wildcat
finding success from less than 30 percent (three out of every ten wells struck oil)
to 60 or 70 percent. As the majors began to divest from older producing
properties in favor of new deepwater prospects, smaller firms purchased older
properties and redeveloped them with significant reserve additions using 3-D
seismic. In all, 3-D seismic tripled or even quadrupled oil and gas reserves in the
Gulf of Mexico. 97
Drilling and subsea engineering advanced in a similar fashion. Drilling contractors
developed a new generation of vessels that took drilling from 5,000 to 10,000 feet
of water, and from 20,000 to 30,000 feet of sub-seafloor depth. New directional
drilling techniques, made possible by downhole steerable motors, allowed
engineers to maneuver a well from vertical to horizontal to achieve greater
accuracy and more fully exploit reservoirs. Drillers also found ways to obtain
information from deep inside wells, using breakthroughs in “measurements-whiledrilling” tools and sensors that provided position, temperature, pressure, and
porosity data while the borehole was being drilled. Improvements in marine risers
using lightweight composite materials and tensioners, along with new methods
for preventing oil from cooling and clogging in deepwater pipelines, enabled the
industry to make long tiebacks between subsea wells and production facilities. To
31
ROVS
1990S: Different companies
take up the slack of R&D
Schlumberger, and even Texas AM
support subsea installation and operations, the industry turned to sophisticated
remote-operating vehicles (ROVs) mounted with TV cameras and umbilical tethers
containing fiber-optic wire for the transmission of vivid images. These swimming
robots replaced divers, whose physical capabilities were stretched to the limit at
1,000 feet.98 The work done in the ocean depths was still human, but most of it
was now remotely performed from the surface. “The dark and forbidding depths
of the Gulf of Mexico, once frequented by only the hardiest of sea creatures, are
now alive with human activity,” reported Time magazine in 1990. “This is the new
geological frontier, and a daring breed of modern-day explorers is using
technology worthy of Jules Verne and Jacques Cousteau to find fresh supplies of
oil and natural gas.” 99
Even as the major operators pushed into deepwater, they outsourced more of the
research and development (R&D) of new technologies. The bust of the 1980s had
driven the exploration and production companies to decrease internal R&D and
adopt policies of buying expertise as needed, rather than cultivating it from
within. The era of the great technology labs run by the majors was ending.
Upstream R&D investments by the majors declined from nearly $1.3 billion a year
in 1982 to $600 million a year by 1996, with the sharpest drop coming in the early
1990s. According to a National Petroleum Council study in 2006: “This ‘buy versus
build’ strategy resulted in a significant reduction in the number of skilled people
within operating companies who understood technology development and
deployment.” 100 Service companies such as Schlumberger, Halliburton, Baker
Hughes, and Oceaneering became the major source of technology development,
raising their R&D spending almost in direct proportion to the decline in
exploration and production firms. A symbol of this trend in the deepwater
business was the 1992 creation of the “Deep Star” consortium, initiated by
Texaco. Deep Star brought together eleven operators to fund contractorgenerated R&D that addressed “technical issues that are barriers to economically
viable deepwater production.” 101 Research universities also took up the slack. A
prime example was the 1990 creation of the Offshore Technology Research Center
at Texas A&M, financed largely by the National Science Foundation, which
featured a giant 150-foot-long wave basin used to simulate deep water
environments, the only place outside of Europe where companies could test
deepwater designs.102
32
Rapid technological advances in the early 1990s did not immediately translate into
more economically feasible practices. Cost overruns, delays, and strained
relationships with contractors plagued the fabrication and installation of the
Shell’s tension-leg platform for Auger, the industry’s bellwether deepwater
project. The continuing slump in oil prices threatened its viability. In addition,
Shell discovered that crude oil from the Auger field was sour (containing sulfur,
which had to be separated out at the refinery) and thus had to be discounted.
The company’s only salvation on this project was if Auger’s wells flowed at higher
rate than Bullwinkle’s, the most productive field in the Gulf.103
1994: Shell, Auger comes in
at more than 10,000
BPD
SUBSEA COMPLETION
Fortunately for Shell and entire offshore industry, Auger’s wells did not
disappoint. In the spring of 1994, after ordeals in mating the deck and topsides
with the hull and some early setbacks in drilling, Shell began to bring in wells that
flowed at more than 10,000 barrels per day, almost three times the initial rate of
Bullwinkle’s wells. This was a massive breakthrough. Even with oil prices
depressed at $20 per barrel or less, deepwater now promised handsome profits.
The Auger wells confirmed the reservoir model for turbidites in deepwater and
even exceeded Shell’s most optimistic estimates. Engineers designed Auger to
handle 42,000 barrels of oil (and 100 million cubic feet of gas) a day from twentyfour wells, but by July 1994 the first three wells were already producing 30,000
barrels per day. By the late 1990s, debottlenecking efforts had raised the TLP’s
capacity to 105,000 barrels per day of oil and 420 million cubic feet per day of
gas. 104
Subsea completions also came of age in the Gulf of Mexico at Auger. In a subsea
completion, the wellhead is located on the ocean floor rather than on a
production platform at the surface. First developed by Shell in the early 1960s,
subsea wells could never stay commercially competitive with platforms in the
Gulf, although they were used increasingly in the North Sea. With the discovery of
high flow rates in deepwater, however, subsea technology began to make
economic sense in the Gulf as well, especially for gas fields and smaller fields that
could not justify a large platform. With tension-leg platforms like Auger, subsea
completions became important as a component of an early production system or
as a remote subsea development. In 1996, Shell pushed the boundaries of
33
offshore technology with subsea well installations at Popeye, which extended riser
water-depth capabilities beyond 3,500 feet, and then at the Mensa gas field, in a
recording-setting depth of 5,400 feet with a 68-mile tieback to the West Delta 143
platform.105
Auger’s multiple blessings also came at a cost to Shell and the environment.
Expanding production at Auger was extremely difficult. At the start of production
in April 1994, Shell continuously flared or vented between one and six million
cubic feet of natural gas per day, without the required federal permission. The
flaring and venting continued for more than four years until August 1998, when
the Minerals Management Service announced it had discovered this violation as
well as Shell’s failure to record and report the releases. In a 2003 civil settlement,
Shell agreed to pay $49 million, an amount equivalent to the market value of
about two weeks of production from Auger. 106 If the company was chastened
after having to admit to these serious violations, Shell management also must
have been tempted to look at this charge as an incidental cost of doing business in
the deepwater Gulf.
Deepwater Treasures
Once news broke about the productivity of the Auger wells, the Gulf of Mexico
became the hottest oil play in the world. And it was mostly about oil. Deepwater
proved to be largely oil-prone. The source rocks for most of the deepwater region
are an Upper Jurassic kerogen that generates natural gas only when subjected to
very high temperatures. But subterranean thermal gradients and reservoir
temperatures are in this region are modest, despite the enormous pressures
exerted several miles below the seabed. The massive amounts of salt (see below)
has acted like a heat sink keeping hydrocarbons from getting too hot and thus
cooking up large amounts of natural gas. 107
Despite downward pressure on oil prices in the late 1990s, the promise of prolific
production from deepwater was too much to resist. Exploration and production
firms with deepwater leases consolidated their positions. Companies that had sat
on the sidelines during the 1980s stampeded into unclaimed areas. Newly
developing or commercialized exploration and production technologies found
34
vibrant new markets. Contractors all along the Gulf Coast and, indeed, around the
world geared up for a surge of activity. Port Fourchon, Louisiana’s southernmost
port on the tip of Lafourche Parish, came to life as the jumping-off point for
supplying and servicing deepwater operations in the Gulf. 108 “What Shell has
done out there is truly extraordinary,” reported Platt’s Oilgram News. “They
basically opened up a new vista.” 109
1996: Shell
Mars Platform
began to
produce, six
months before
NASA launced
Pathfind to mars,
the rig cost 1
billion.
‘Alliances” are a new type of
colloborative business model
The next landmark on the deepwater horizon was Mars. In July 1996, the
company began producing from its Mars platform, six months before NASA
launched its Pathfinder probe to the planet Mars. At a total cost of $1 billion,
Shell’s Mars was more than three times as expensive as the Mars Pathfinder, and
its remote technologies and engineering systems were arguably more
sophisticated. The investment of money and technology paid dividends: the Mars
platform tapped into the largest field discovered in the United States since
Alaska’s Prudhoe Bay. Creating a system to produce the field also established a
new paradigm for large projects and revealed how exploration and production
strategy was being reshaped in the Gulf. 110
To reduce costs and avoid the headaches experienced at Auger, Shell introduced a
different contracting model at Mars based on “alliances.” The alliance with BP
broke new ground in the industry by establishing an arrangement for sharing
technology and patents. Shell ended up contributing more than BP, which had
little experience in deepwater. But the costs and risks were too large to go it
alone, which Shell had usually preferred to do. The partners carried the alliance
concept over to their relationship with contractors. Key relationships created in
this alliance included the Italian firm, Belleli, which built the tension-leg platform
hull; J. Ray McDermott, which fabricated the topsides; and Aker Gulf Marine from
Corpus Christi, which integrated the two. Rather than following the traditional
adversarial model, in which operators drew up specifications and took bids, the
project team brought in contractors early on to collaborate on developments and
share risks and rewards. The key advantage of this approach was that it reduced
the so-called “cycle time” of design, bidding, and contracting by an estimated six
to nine months. On a platform such as Mars, where the first well came in at
15,000 barrels per day, the time-value of money made at the beginning rather
than at the end of the platform’s life was quite significant. Like Deep Star, Shell’s
35
contracting model at Mars, replicated on subsequent Shell tension-leg platforms,
established the growing importance of alliance networks to global upstream
developments in technologically complex frontier regions characterized by high
costs and risks. 111
1999: Shell/BP/
Conoco/Exxon
built URSA,
broke records
30,000 BPD
2001: Shell’s rig BRUTUS
made a 200 mill BPD in
3,000 feet of water
in GREEN CANYON
BASIN MASTER
In the late 1990s, having control of one-third of all Gulf of Mexico leases in depths
greater than 1,500 feet, Shell rolled out one tension-leg platform after the
other. 112 In 1997, the TLP Ram/Powell, a Mars “clone” developed in a joint
venture with Exxon and Amoco, went on-stream in 3,200 feet of water in the
Viosca Knoll area 80 miles southeast of Mobile, Alabama. In March 1999, Shell
and its minority partners, BP, Conoco, and Exxon, started up the massive TLP,
Ursa, on a lease two blocks to the east of Mars. Nearly double the weight of Mars,
Ursa was designed to accommodate astounding initial well-production rates of
30,000 barrels per day; in September 1999, the A-7 well at Ursa broke all records
with a daily production rate of nearly 50,000 barrels of oil equivalent per day.
Finally, in 2001, Shell brought in production from the Brutus tension-leg platform,
which tapped into a 200-million-barrel field in 3,000 feet of water in the Green
Canyon. 113
Shell’s new technologies solidified the company’s position as the leading “basin
master” in the Gulf. A 1994 McKinsey study coined this term to describe those
companies who, in a world of shrinking exploration and production opportunities,
built dominant acreage and logistical positions in new plays, not only through
technical skill in finding and developing resources, but by getting a jump on
competitors in frontier locations where scale and control over infrastructure
conferred strategic advantage. McKinsey pointed to Shell’s operations in the
deepwater Gulf as a hallmark of basin mastery. 114 Shell’s tension-leg platforms, as
well as major fixed platforms such as Bullwinkle and West Delta 143, not only
produced hydrocarbons from the fields beneath them, but also served as “hubs”
used to take and process oil and gas production from satellite subsea wells, thus
extending the life of those platforms once their own production declined.115
Deepwater output from Shell platforms and subsea wells, and eventually from
other companies in the vicinity, fed into network of Shell-owned or operated
crude oil trunk pipelines, gathering systems, and natural gas pipelines. Shell also
36
1994: Shell
Pipelines coming
into Port Fourchon
made special arrangements to transport crude oil production from its growing
deepwater properties into the Clovelly storage facilities owned by the Louisiana
Offshore Oil Port (LOOP) in South Louisiana.116 In late 1994, Shell began plans to
build its $100 million, 200,000 barrels per day Mars pipeline system to move crude
oil to Clovelly. The main artery of the system included a 130-mile, large diameter
pipeline from the Mars field to the onshore terminal at Port Fourchon. Shell also
laid an equally large pipeline—called the Amberjack pipeline—from the Bullwinkle
field at Green Canyon Block 143 to the LOOP Fourchon facilities. By 1996, LOOP
began receiving shipments of crude from these first deepwater pipelines. Five
years later, Shell operated 11 of the 16 key oil trunk pipelines servicing
deepwater. This position enabled Shell to capture a large share of the value
creation, extract rents from competitors through access charges, and erect
barriers to entry in the three major corridors offshore Louisiana. 117
Shell’s lead on the rest of the industry in the deepwater Gulf was substantial but
not unassailable. During the latter half of the 1990s, many companies gained
ground, including a rising percentage of small and mid-sized independents. But
the only company that chased down and eventually overtook Shell was BP.
Deeper Still
In the 1990s, technological breakthroughs in imaging and drilling through massive
salt sheets opened a new “subsalt” play, first on the shelf and then ranging into
deepwater. Discoveries in at least four different “fold belts” across the Gulf of
Mexico extended the search for oil into “ultra-deepwater” and led to another
wave of innovation in floating production. In 1990, most oil and gas from the Gulf
still came from shallow water; average production-weighted depth had barely
reached 250 feet. By 1998, the weighted average passed the 1,000-foot
milestone, at which point deepwater production (at about 700,000 barrels per day
of oil and 2 billion cubic feet per day of gas) surpassed that from shallow water for
the first time. 118
As the industry moved deeper, the abandonment and decommissioning of older
platforms on the shelf became a thriving business. During the 1990s, 1,264
platforms were removed, more than twice the total prior to 1990; after 2000,
37
removals continued at a rate of 150 per year.119 Some obsolete platforms found
use as “artificial reefs” through a creative program coordinated between the
Minerals Management Service and the states of Texas and Louisiana to place old
platforms in specially designated locations on the sea bottom, where they
attracted marine life much like natural reefs. 120
1995: Congress:
Royalty Relief Act (not
unlike what is being
talked about in 2018
[seems like you could take this as an
example — if this happened then, there
is little to no reason to imagine that it
won’t happen now. Even if people are
worried about a lack of predictability
with trump, They can still plan for the
future and scoop up the land.]
Meanwhile, another relaxation in the terms of access to Gulf of Mexico leases
helped sustain industry interest and draw in more players. In 1995, Congress
enacted the Deep Water Royalty Relief Act, which provided a suspension of
royalty payments on a portion of new production from deepwater operations.
The United States was facing global competition for upstream capital during a
period of low prices, and royalty relief’s sponsor, Louisiana senator Bennett
Johnston, designed the legislation to entice investments in economically “marginal
resources” in deepwater. Royalty relief appeared to have the desired effect. In
1996 and 1997, the Minerals Management Service issued a record number of
leases. The Central Gulf of Mexico sale held on March 5, 1997 awarded 1,001
leases, more than 5 million acres, the largest sale of all time. The number of Gulf
leases issued in deepwater climbed from about 1/3 the total number before
royalty relief to about ½ the total after passage of the act. Before royalty relief,
only a handful of major oil companies and larger independents dared to explore in
deepwater. By 2001, more than 40 different operators had drilled deepwater
wells. 121
Critics of royalty relief, on the other hand, argued that its proponents greatly
overstated the act’s effects in promoting deepwater expansion. 122 They viewed
the purpose of the legislation not as “relief,” but rather as corporate welfare for a
“highly profitable world-class hydrocarbon province where large oil companies
enjoy an overwhelming presence, and cash-strapped small companies do not form
a part of the picture.” 123 Royalty relief no doubt enticed more oil companies,
especially non-majors, into deepwater. But judging from the huge up swell in
bidding at the May 1995 Central Gulf of Mexico sale, before the royalty relief
passed in November, the race appeared to be already under way. 124 Oil explorers
were clearly gunning for fields like Auger with high flow rates and high ultimate
reserves. Many of them were also on the hunt for petroleum in a new geological
location: beneath the Gulf’s massive sheets of salt.
38
Salt is the dominant structural element in the Gulf of Mexico petroleum system.
Oil explorers had long discovered oil in the Gulf trapped against the flanks of salt
domes or between the salt diapirs (autochthonous salt) in the deepwater minibasins. But geologists typically had assumed that there could be no oil reservoirs
lying beneath any salt they encountered. By the 1970s, advancing knowledge
about the basin’s regional geology suggested that oil could be found under the
salt. In many places, the salt pillars that extruded upward into sandstone and
shale flowed horizontally in elastic plumes over vast expanses of younger,
potential oil-bearing sediment, covering more than 35,000 square miles across the
Gulf. Geologists invented new terminology to describe different kinds of salt
formations (allochthonous salt) in the picture they pieced together – canopies,
tongues, nappes, egg crates, and turtle domes– and established a special subfield
of geology, called “salt tectonics,” to explain how the salt moves. What they were
really interested in, however, was what lay beneath the salt. 125
Mickey & Goofey
As the geology came into focus, companies rushed to drill below these salt
plumes. In 1990, Exxon (with partner Conoco) made the first subsalt discovery at
a prospect called Mickey, a name given in association with Exxon’s famous
promotional comic book for Disney, Mickey and Goofy Explore the Universe of
Energy. Located in 4,352 feet of water on the Mississippi Canyon 211 lease (about
ten miles northeast of where BP drilled Macondo), Mickey was not a large enough
discovery at the time to put into production.126 Two years later, Chevron drilled a
well in Garden Banks 165 through almost 7,000 feet of salt and another 5,000 feet
of subsalt sediment, but found no oil. Still, the well was a milestone because it
demonstrated that the technology existed to drill through an enormous body of
salt. 127
Finally, in 1993, Phillips Petroleum made headlines in announcing the first
commercial subsalt oil discovery. Years earlier, Phillips had begun to look
systematically for places where salt sheets might be obscuring oil reservoirs.
Company geologists studied the basin-wide distribution of known oil and gas fields
and pinpointed gaps where there was a probability fields might exist. They found
one noticeable gap around Ship Shoal 349 on the edge of the shelf in about 375
feet of water. In 1989, Phillips acquired 15 leases including one at this location
39
they called Mahogany. It was a speculative move based on 2-D seismic data,
which did not provide clear enough vision to see through the salt. 128 This was the
big challenge. Salt plays havoc with seismic sound waves, which travel through
salt at a much higher velocity than the surrounding sediments and also get
refracted, similar to how the image of a pencil gets bent when stuck in a glass of
water. Obtaining clear images of rocks in their proper location under the salt
seemed almost impossible. “It was pretty much like a blurry, snowy TV picture,”
said one industry geophysicist. 129
1996: Diamond Offshore
drilling, working for
Phillip’s looking for oil
under sheets of salt
could this be the one
from Armageddon?
To get a better focus, Phillips shot a 3-D seismic survey over the prospect. And to
share the substantial costs of conducting a 3-D survey and drilling through the salt,
which was twice the cost of a normal well, the company took on Anadarko and
Amoco as partners. Phillip’s geophysicists then processed the seismic data with a
newly developed computing algorithm, called “pre-stack depth migration.” Simply
stated, this was a fancy way of repositioning the return signal to show more
accurately the coordinates of the seismic reflection from under the salt. Neither
Phillips nor any other company at the time had overcome the imaging problems
presented by the salt, but the processing improved the picture enough to make an
informed stab at the target. Drilled by a Diamond Offshore semi-submersible, the
first well passed through 3,800 feet of salt, at one point encountering an interval
of unstable rock that threatened to collapse the well. Eventually, the drill hit a
100 million barrel field. In 1996, Phillip’s Mahogany platform began producing at
20,000 barrels per day. 130
The subsalt play progressed, haltingly, from Mahogany. In 1994, Shell, with
partners Amerada Hess and Pennzoil, discovered the Enchilada oil field; in 1995,
Texaco and Chevron found gas at Gemini; and in 1996, Phillips and Anadarko
made a discovery at Agate, near Mahogany. Drilling through salt involved a
myriad of technical complications. Under high temperature and pressure, salt
masses flow, creep, and deform like plastic. Among other problems, this
movement can shift the well casing and production tubing. Subsalt wells also had
to be drilled to great depths, and thus individual well costs escalated very quickly.
Most importantly, from an exploration perspective, computers were not powerful
enough to run the algorithms needed to obtain reliable seismic images from
40
beneath the salt. Subsalt wells missed hydrocarbons a lot more often than they
hit them. 131
As operators drilled a string of dry holes in the subsalt, the post-Mahogany
euphoria ebbed. In the 1995-1997 lease sales, companies began to leap past the
shallow subsalt play into “ultra-deep” water (greater than 5,000 feet), looking for
easier-to-image prospects in foldbelts formed by the lateral movement of salt and
sediment. The dynamic interaction between mobile salt and deepwater turbidite
deposits created gigantic anticlincal structures called compressional box folds. 132
These had the potential to harbor massive oil reservoirs. In 1995, Oryx Energy
made a discovery at Neptune, opening a new play in the Western Atwater
Foldbelt. The next year Shell announced a strike at its Baha prospect in the
Alaminos Canyon in far western Gulf. This discovery initiated the Perdido Foldbelt
play in more than 8,000 feet of water near the edge of the deep Louann salt. “In
many cases,” reported the Houston Chronicle in 1997, “interpreting seismic shot
through the flatter salt beds in deeper waters is easier than compensating for the
distortions caused by the jagged, irregular structures in the shallower depths.” 133
A deeper ocean frontier, once again, beckoned the industry. But achieving
consistent success in modeling subsalt prospects anywhere still required more
innovation in acquiring, processing, and interpreting seismic data.
Industry Restructuring
1990s: oil
mergers
As geologists and geophysicists in Houston dedicated themselves to solving the
riddles presented by depths of the Gulf of Mexico, the world oil industry began a
radical restructuring. Oil and gas companies had not yet recovered from the
1980s bust and were coping with global surpluses when oil prices swooned again
in the late 1990s, driven in large part by the drop in global demand precipitated by
the Asian financial crisis. Increased shareholder pressure on oil firms to improve
short-term financial results and demonstrate long-term profitability spurred one
of the greatest oil merger movements in history. In 1998, BP acquired Amoco.
The next year, Exxon merged with Mobil in an $80 billion deal to create the
world’s largest company. BP-Amoco countered by acquiring Arco, Total merged
with Fina and Elf (renamed Total in 2003), Chevron combined with Texaco, and,
41
finally Conoco and Phillips joined to create the sixth “super major” (along with
Royal Dutch Shell). During these turn-of-the-century consolidations, many
companies relocated staff from New Orleans and other places to Houston,
reinforcing that city’s claim as the international capital of oil.134
Mergers boosted results as management pared away overlapping functions and
laid off employees, reinforcing the trend toward outsourcing R&D and reducing
internal technological expertise. Mergers benefitted the oil industry, on the other
hand, by equipping firms with new capital reserves needed to finance long-term
growth strategies—some of them dependent on riskier, but potentially higherreturn, ventures. The deepwater Gulf figured significantly in the growth strategies
of all the “super major” oil companies—albeit as only one among several frontier
provinces worldwide. They took renewed interest in Arctic and sub-Arctic regions
and began to invest in other deepwater basins from the northeast Atlantic west of
the Shetland Islands, to the Campos Basin off Brazil, to West Africa’s Gulf of
Guinea and offshore Angola, to northwest Australia. By the early 2000s, analysts
regarded the three provinces rimming the central Atlantic Ocean—the Gulf of
Mexico, Brazil, and West Africa—as the “New Golden Triangle,” the place where
the largest future reserves were likely to be found. 135
TRANSOCEAN
DEEPWATER
HORIZON
CONSTRUCTION
Echoing the oil companies, consolidation also swept through offshore contractors.
After half of the world’s seismic crews were idled in 1999, the ensuing shakeout
left only handful of big firms standing, led by Western-Geco, owned by
Schlumberger and Baker-Hughes; Petroleum Geo-Services; and CGG and Veritas
(which merged in 2007). The major oil-service companies also felt the heat at this
time, leading to the merger in 1998 between Energy Ventures and Weatherford
Enterra to become Weatherford International, and between the two oil field
giants, Halliburton and Dresser Industries, who combined their subsidiaries,
Kellogg and Brown & Root, into the engineering and construction subsidiary,
KBR. 136 Most significantly, the drilling-contractor industry—continuously in the
process of mergers, acquisitions, and bankruptcies—consolidated further. In
1999, Sedco-Forex and Transocean, both the product of a series of earlier
mergers, became Transocean Sedco Forex, later simplified as Transocean. In
2000, this new company acquired R&B Falcon, whose assets included a semisubmersible under construction by Hyundai Heavy Industries in Ulsan, South
42
Korea called the Deepwater Horizon. In 2001, Global Marine merged with Santa
Fe, and six years later this firm became part of the modern Transocean, by far the
largest offshore drilling firm in the world. 137
International
realities of
construction,
moving from GoM
to Asia
During this era, offshore oil exploration and production became an increasingly
global enterprise. U.S. operators searched for oil in deepwater basins outside the
Gulf of Mexico, and more than ever, foreign companies such as Norway’s Statoil,
Brazil’s Petrobras, and France’s Total, were drilling in the Gulf of Mexico.
Shipyards along the Gulf Coast—the pioneers in design and construction of mobile
offshore drilling units—had by the 1990s almost totally surrendered this work to
competitors in Korea and Singapore. Many of the largest offshore engineering,
construction, and pipelaying firms (Heerema Marine Contractors, Technip, Worley
Parsons, and others) were globally oriented companies based outside the United
States.138
Offshore contractors headquartered in the Gulf survived by expanding
internationally themselves. Morgan City’s J. Ray McDermott branched out around
the world more aggressively after the 1980s depression and eventually moved its
headquarters to Houston. Louisiana-based companies Gulf Island Fabricators,
Chet Morrison Contractors, Global Industries, and even Frank’s Casing Crew and
Rental Tools grew from small, family owned firms servicing operations in the Gulf
of Mexico to become major offshore contractors active worldwide.
BP’s Moment
In the late 1990s, the global company making the biggest news in the Gulf of
Mexico was BP. The company was founded in 1908 as the Anglo-Persian Oil
Company (in 1954, its name changed to British Petroleum; in 2001, the name was
shortened to BP) and for decades had built its business around access to crude oil
from Iran and neighboring Middle East countries. In the 1960s and 1970s, BP
achieved great success in discovering and developing oil reserves in the North Sea
and in Alaska’s Prudhoe Bay. By the early 1990s, however, the company tottered
on the brink of bankruptcy. BP had been exiled from the Middle East and Nigeria.
Production from Prudhoe and the North Sea were in decline. Billions of dollars
43
had been invested in unprofitable nonpetroleum ventures. And an ambitious
exploration program had yet to bear fruit.139
Spoken like a true
wildcatter
John Browne, a forceful exploration manager whose father had also worked for
BP, orchestrated the company’s stunning turnaround. In the 1980s, as executive
vice president of Sohio, BP’s American subsidiary, he reined in spending and cut
staff in order to place the company on better footing. Returning to London in
1989, he reorganized BP’s exploration arm in a similar manner. Browne slashed
expenditures, established a rigid if not ruthless performance ethic, and refocused
on high-risk but potentially high-reward opportunities. “If we didn’t take risks, we
wouldn’t be in the exploration business,” said Browne in 2002. 140 Upon becoming
chief executive in 1995, Browne (who assumed the title “Sir” when he was
knighted by the Queen of England in 1998) directed a major part of BP’s upstream
Text
focus to the deepwater Gulf. In the deals
he negotiated to acquire Amoco and
Arco, BP emerged with a greatly expanded portfolio of Gulf leases and assets. 141
In the late 1990s, BP’s exploration team in the Gulf made a series of remarkable
deepwater discoveries. Once the fields came online, they vaulted BP ahead of
Shell as the Gulf’s large oil producer. BP prided itself as a “fast follower,” rather
than an “early adopter,” in exploiting technological innovations. BP had closely
followed Shell at Mars and quickly applied what it had learned to develop the
Marlin field with a tension-leg platform in 3,400 feet of water. “We were certainly
riding Shell’s coattails at that point,” admitted Dave Rainey, BP’s deepwater
exploration manager, “but those successes did allow us to predict a production
stream that would grow to about 150,000 barrels per day from essentially
nothing.” 142 BP also joined with Exxon in developing deepwater discoveries at the
Hoover and Diana fields in the East Breaks area of the western Gulf. After the
string of subsalt dry holes in the mid-1990s, some of BP’s competitors began
looking for other kinds of plays the Gulf might still present. Shell shifted to a more
process-oriented structure to manage production from its large number of
deepwater developments. But BP sprang faster than anyone to confront the Gulf’s
nagging exploration challenge—the salt.143
“Follow the salt,” Rainey implored his team. 144 They responded by stepping up
their quest to clarify seismic images beneath the salt. Computing technology was
44
constantly evolving to handle ever-greater amounts of seismic data. Most
notably, this included four-dimensional, or “time-lapse” methods of analyzing how
reservoirs change over time (from a series of 3-D surveys collected from different
points in time). Processing algorithms were improving just as steadily. There
were still limitations, however, in the quality of the subsalt seismic data. Data
acquisition, not processing, presented the main constraint. Geoscientists needed
to be able to capture data over wider expanses and from many different
directions. The solution in deepwater was to shoot seismic data with “wideazimuth” streamers (sound receivers towed behind a seismic vessel). Azimuth
refers to the angle of linear horizontal direction. Until the mid-1990s, seismic
surveys typically involved towing streamers along one azimuth. A wide-azimuth
survey meant acquiring data in multiple directions using several seismic vessels at
the same time.145
What ships were used for
wide azimuth surveys?
Conducting a wide-azimuth survey required a flotilla of vessels as well as a
fundamental understanding of the geology -- its salt history, its stratigraphy, and
the sources and migration pathways of oil. “We need to find the plumbing,” said
Rainey. 146 So in 1995, BP exploration launched a far-reaching study of the
deepwater Gulf, looking more closely at the migration history of producing regions
on the shelf and drawing geological analogies with deepwater. They found that in
deepwater there were areas just as big as the shelf with equally good “charge
systems” and traps. Considering those factors, they began to believe that the
deepwater should evolve in a similar fashion as the shelf and concluded that this
frontier could ultimately hold 40 billion barrels of commercial oil. This defied the
conventional wisdom, which predicted ultimate reserves in the deepwater Gulf to
be one-fourth that amount. But history teaches one thing about the conventional
wisdom in the Gulf – that it has been repeatedly defied. “One of the lessons we
have learned about the Gulf of Mexico is never to take it for granted,” said
Rainey. 147
BP combined a solid understanding of salt geology with dramatically improved
sub-salt images gathered from wide-azimuth surveys. They saw hints of larger,
potentially simpler traps under the salt. The new generation of drilling vessels
coming onto the market, along with the new advances in drilling, enabled BP to
take the risk on exploring those prospects. Outpacing most of the industry by a
45
1998-9: Atlantis
and Mad Dog
plays and
CRAZY HORSE
Lakota: Native
American history
and etymology
Ironically the rig
THUNDER HORSE
that was put on this
play capsized during
hurricane Dennis in 2005
(see page 49)
2000: First large sub sea
tie back to production
platform, BP/Shell
year, BP shifted its prospect inventory much deeper. Then the company made a
historic string of giant oil strikes in subsalt formations ranging out to 7,000 feet of
water. In 1998, it struck oil in the deepwater subsalt of the Green Canyon’s
Mississippi Fan Foldbelt at Atlantis (minority partner BHP Billiton) and Mad Dog
(minority partners BHP Billiton and Chevron), two of the largest fields ever
discovered in the Gulf of Mexico: Atlantis’s original reserves estimates were 400800 million barrels of oil equivalent and Mad Dog’s were placed at 200-450 million
barrels. In 1999, working for BP (and minority partner Exxon) in 6,000 feet of
water in the Mississippi Canyon, Transocean’s Discoverer Enterprise drilled the
largest Gulf of Mexico field of all time at a “turtle” structure, subsalt prospect
called Crazy Horse. Containing more than 1 billion barrels of recoverable reserves,
Crazy Horse symbolized yet another rebirth of offshore oil in the Gulf of Mexico. 148
There was one group of people, however, who were not initially pleased with the
Crazy Horse discovery – the descendants of the Lakota warrior and spiritual leader
who regarded the use of his name outside of a spiritual context as sacrilegious. A
BP geologist with a passion for the music of rock star Neil Young actually had
named the prospect after his band. But this did not matter to the Lakota. In 2002,
BP yielded to the Lakota’s objections and renamed the field Thunder Horse. 149
The discoveries kept coming. One month after the discovery well at Thunder
Horse, BP made another oil and gas hit at Horn Mountain in the Mississippi
Canyon, on leases originally acquired by Arco’s subsidiary, Vastar Resources. In
2000, BP discovered a major above-the-salt deposit at Holstein (a 50 percent joint
venture with Shell) near the Mad Dog and Atlantis fields in the Green Canyon.
That same year, the two partners announced their Na Kika project, a joint subsea
development of five independent fields, four predominantly oil and one natural
gas, tied back to a central semi-submersible floating production facility, an
industry first for the Gulf of Mexico. In 2001, BP found another giant oilfield five
miles away from Thunder Horse called Thunder Horse North, containing an initial
reserve of 500 million barrels. Also that year, BP and yet another partner,
Chevron, discovered oil in 7,000 feet of water at their Blind Faith prospect in the
Mississippi Canyon. (In the harsh glare of hindsight following the Macondo
blowout, the executive director of the National Resources Defense Council
commented that, in the name Blind Faith, “It would be hard to find a more fitting
46
symbol of the oil industry’s steady and assertive advance into the Gulf’s deep
waters, or the corporate thinking behind it.”) 150
In August 2002, BP’s Browne boldly announced that the company would spend
$15 billion during the next decade on drilling and developing these discoveries. BP
had become the largest-acreage holder in the deepwater Gulf, with more than
650 tracts in water depths greater than 1,500 feet, and in possession of one-third
of all deepwater reserves then discovered. The deepwater Gulf of Mexico, he
assured his audience, would be the “central element” of BP’s growth strategy. 151
“The question is how they will manage the embarrassment of riches they have,”
said one analyst at the time. “They have a bunch of projects and they need to
coordinate people and contractors. There is the sheer scale of the facilities and
the size of the investment required – all this before a drop of oil ever comes out of
the ground.” 152
Clouds on the Horizon
ULTRADEEP
After BP’s impressive series of discoveries, the industry dove into deeper waters
across the Gulf. From 2001 to 2004, operators found eleven major fields in 7,000foot depths or more. Most deepwater discoveries were made in relatively young
geologic-age sandstones of the lower Miocene era. But companies increasingly
explored down into the deeper and older Paleogene, or “Lower Tertiary,” strata
found in the foldbelts in ultra-deepwater near the edge of the Sigsbee
Escarpment, a salt sheet that resembles a near-surface moonscape extending to
the base of the continental slope. In 2006, Chevron and its partners Devon Energy
and Statoil disclosed promising test results from a two-year-old discovery at its
Jack prospect in the Walker Ridge area. The “Jack-2” test proved that Lower
Tertiary reservoirs could produce oil at pressures encountered at great depths,
creating excitement that the Lower Tertiary play may ultimately yield between 3
and 15 billion barrels of hydrocarbons—collectively rivaling the size of the great
Prudhoe Bay discovery. This implied a future for ultra-deep drilling, ranging out to
10,000-foot water depths and 25,000 feet beneath the seafloor. Reported the Oil
& Gas Journal, “The Jack-2 test results boost confidence in that potential and
highlight the central role technology plays in future supply.” 153
47
The industry was in need of a confidence booster after the previous three years of
development challenges that had sorely tested BP’s and the industry’s confidence
and conviction about deepwater.
BP’s decision to develop multiple deepwater fields at once was an incredibly
ambitious undertaking. Its program focused on the four major fields at Holstein (a
discovery above the salt), Mad Dog, Atlantis, and Thunder Horse—with total
potential reserves of 2.5 billion barrels of oil, in water ranging from 4,000 to 7,000
feet deep, requiring wells reaching 30,000 feet in total depth. To produce oil at
these four places, BP selected “truss spars” for Holstein and Mad Dog, and semisubmersibles (such as the one BP and Shell had introduced at Na Kika), for
Thunder Horse and Atlantis. 154
1996: Kerr-McGee
and SPAR tech.
PIPELINE:
CAMERON
HIGHWAY
AND MARDI
GRA
SYSTEM
Beyond about 4,000-foot depths, tension-leg platforms could no longer be used
because the weight of the tension cables at those depths was too great. In 1996,
Kerr-McGee had successfully demonstrated the viability of the spar concept at its
Neptune field. The spar resembles a giant buoy, consisting of a large-diameter,
single vertical cylinder supporting a deck for drilling and processing. It contains a
deep-draft floating caisson, which keeps about 90 percent of the structure
underwater, giving the structure favorable motion characteristics compared to
other floating concepts. Neptune knocked down many barriers – technical and
regulatory – to deploying spars as production platforms in the deepwater Gulf.
During 2000-2005, Kerr-McGee went on to pioneer innovations in spar designs,
with so-called “truss” spars at the Nansen, Boomvang, and Gunnison fields, and
the “cell” spar the Red Hawk field. 155
BP’s choice between spars and semi-submersible production facilities came down
to different economic, functional, and safety factors at each field. All four
projects would be linked by pipeline to the Ship Shoal 332 platform hub, where
crude would be transferred into a 390-mile pipeline, the Cameron Highway, and
transported to refineries at Texas City and Port Arthur, Texas. All four projects, as
well as Na Kika, also would connect to the BP-operated Mardi Gras transportation
system. A major, $1 billion project itself, the Mardi Gras system integrated five
different pipelines covering a total of 450 miles with the capacity to transport 1
million barrels per day of crude and 1.5 billion cubic feet per day of natural gas.
48
The selection and development of technology on all these projects was a major
challenge at every step, given the extreme water depths, reservoir conditions, and
associated environmental issues. Thunder Horse had an unusually high
pressure/high temperature reservoir, creating a “cascading effect on subsea
facilities and the floater.” Atlantis was located under complex seafloor
topography near the steep Sigsbee escarpment, and a large portion of the field
was subsalt. Mad Dog lay under a massive salt canopy, causing large uncertainties
in describing the actual reservoir. The Holstein geology forced BP to use a spar
with wells housed on the platform. As BP production managers admitted in 2004,
“None of the projects can be categorized as ‘business as usual.’” 156
2003: Drill Ship
DISCOVERER
ENTERPRISE BREAKS
UP
THUNDER HORSE
The $5 billion Thunder Horse project was especially fraught with difficulties. A
major incident in drilling occurred even before the semi-submersible facility was
put in place. In May 2003, the top of the drilling riser on the drillship Discoverer
Enterprise broke loose from the vessel, ripped apart again 3,000 feet under the
surface, and left the lower marine riser package to collapse on and around the top
of the blowout preventer, where the riser and drill pipe snapped off. The blowout
preventer’s blind shear rams were activated and worked as designed, averting any
spill. “No one was hurt, and the well was secure,” BP reported, “but the initial
scene was daunting.” 157
An even bigger scare awaited the Thunder Horse semi-submersible production
facility, which was towed to the field and moored on location in April 2005. As
work proceeded to connect the pre-drilled subsea wells and commission all the
facilities above and below the water, Hurricane Dennis neared in July, forcing the
evacuation of all personnel and leaving the production facility unmanned. “No
one could have anticipated the major shock that awaited the first helicopter
flights after the storm had passed,” according to one official BP account. The
columns and other areas of the hull had filled up with water, causing the facility to
list to one side. Investigations later revealed that a valve in the bilge and ballast
system had been installed backward, allowing seawater to move into the hull, a
failure exacerbated by electrical pathways that were not watertight. Had BP not
arrived when it did, the structure might have been lost. Crisis management crews
were able to right the facility within a week, but reworking Thunder Horse’s hull
systems delayed commissioning for a year. Similar work on the Atlantis semi-
49
submersible production platform pushed its installation back several months, too,
until July 2006. 158
Nor was that the end of BP’s major shocks, as it discovered that a weld had
cracked open on one of the Thunder Horse manifolds that collected oil from the
network of satellite subsea wells. “Befitting its name, BP’s massive Thunder Horse
offshore platform has been beset by dark clouds ever since it was on the drawing
board,” reported the Houston Chronicle. 159 The company made the difficult
decision to pull out all the manifolds and subsea equipment that had a similar
weld configuration— adding hundreds of millions of dollars to the cost of the
project. After a lengthy investigation, engineers found that minute cracks had
formed in the thermal insulation on the manifold pipe work, leading to reactions
that embrittled the weld interface. BP and contractors developed new weld
techniques, created more rigorous inspection and assurance procedures, and
refurbished all the affected subsea equipment on Thunder Horse and at Atlantis.
Thunder Horse finally delivered its first oil on June 2008, three years behind
schedule.160 By March 2009, production ramped up to 250,000 barrels per day,
4.5 percent of total U.S. daily production (Atlantis went online a year before
Thunder Horse, in 2007, but BP has been dogged by accusations that Atlantis has
not been in compliance with safety and environmental regulations.) 161
2000s:
HURRICANES
BP was not alone confronting environmental challenges. During 2002 and 20042005, hurricanes ravaged the Gulf Coast, with major impacts on offshore
infrastructure and operations. In September 2002, Hurricane Lili blew into the
heart of the Ship Shoal, Eugene Island, and South Marsh Island areas, damaging
platforms and pipelines. Two years later, Ivan, a Category 4 storm, swept through
the alley east of the Mississippi River delta, causing mudflows and anchordragging by mobile drilling units that tore up undersea pipelines. The following
year, Hurricane Katrina flooded New Orleans and points east, with horrible
effects. Offshore, Katrina destroyed 47 platforms and extensively damaged
another 20. The 1,000-ton drilling rig on Shell’s Mars platform collapsed,
prompting an around-the-clock onsite recovery effort. A month later, Hurricane
Rita, storming farther west, wiped out 66 platforms and broke up another 32. Rita
capsized Chevron’s Typhoon, an unfortunately named “mini” tension-leg platform.
The majority of the platforms obliterated in these two storms were from an early
50
generation of Gulf facilities, more than 30 years old. The two hurricanes also
damaged more than 70 vessels and nearly 130 oil and natural gas pipelines, as
they hit more prolific and sensitive areas than previous storms and, accordingly,
caused much more extensive damages. Ominously, the short interval between
the two storms exhausted the resources available for normal recovery and
overwhelmed support bases. 162
The Oil Industry and Deepwater Technology at Decade’s End
As the end of the decade approached, the offshore industry in the Gulf had
recovered from hurricane devastation and pressed on with deepwater and ultradeepwater developments. Although many independent companies (such as
Anadarko, Hess, BHP, Newfield, Marathon, and Mariner) had substantial
deepwater leases and were actively exploring and developing them, the edge of
the frontier was mainly the playground of the super-majors and firms with partial
government ownership, such as Norway’s Statoil and Brazil’s Petrobras—long a
deepwater leader.163
2009: DEEPWATER
HORIZON
In September 2009, Transocean’s Deepwater Horizon semi-submersible made a
historic discovery for BP at the company’s Tiber prospect in the Keathley Canyon.
Drilling in 4,000 feet of water and to a world-record total depth of 35,055 feet, the
Deepwater Horizon tapped in a vast pool of crude estimated to contain 4 to 6
billion barrels of oil equivalent in place, one of the largest discoveries in U.S.
history. Six months later, in March 2010, Shell (with partners Chevron and BP)
started up production at its Perdido spar in 8,000 feet of water in the Alaminos
Canyon. A hub for the development of three fields, Perdido was the world’s
deepest offshore platform, besting the distinction claimed by Anadarko at its
Independence Hub in 2007, and it became the first project to pump oil and gas
from the Lower Tertiary. Other Lower Tertiary developments were coming onto
the horizon. Later in the year, Petrobras planned to develop the Gulf of Mexico’s
first floating, production, offloading, and storage facility to produce from Lower
Tertiary reservoirs at its Cascade and Chinook prospects in the Walker Ridge. By
2010, the industry had announced 19 discoveries in the Lower Tertiary trend, 14
of them containing more 100 million barrels of recoverable oil and gas. 164
51
The fanfare around these discoveries and developments still could not disguise
the fact that the technical hurdles of ultra-deepwater and the subsalt remained
unique and formidable. Water depths are extreme, down to 10,000 feet. Total
well depths, as Tiber demonstrated, can go beyond 30,000 feet. Well shut-in
pressures can surpass 10,000 pounds per square inch. Bottom-hole temperatures
can exceed 350 degrees Fahrenheit. Salt- and tar-zone formations can be
problematic. The sandstone reservoirs are tightly packed, and ensuring
hydrocarbon flow through risers and pipelines can be difficult. According to a
2008 report from Chevron engineers for the Society of Petroleum Engineers, all
these factors “separate many GoM deepwater and ultra deepwater wells from
deepwater and ultra deepwater wells in other parts of the world.” 165
2007: Blowout
preventers
Drilling in extreme water depths poses special challenges. Risers connecting a
drilling vessel to the blowout preventer on the seafloor have to be greatly
lengthened, and they are exposed to strong ocean currents encountered in the
central Gulf. Managing higher volumes of mud and drilling fluid in these long
risers makes drillers’ jobs more demanding. Connecting and maintaining blowout
preventers thousands of feet beneath the surface can only be preformed by
remote-operating vehicles. A 2007 article in Drilling Contractor described how
blowout preventer requirements got tougher as drilling went deeper, because of
low temperatures and high pressures at the ocean bottom. The author discussed
taking advantage of advances in metallurgy to use higher-strength materials in the
blowout preventers’ ram connecting rods or ram-shafts. More generally, he
suggested “some fundamental paradigm shifts” were needed across a broad range
of blowout-preventer technologies to deal with deepwater conditions. 166
Under such conditions, methane hydrates raised a host of serious problems.
Methane gas locked in ice (“fire ice”) forms at low temperature and high pressure,
and can often be found in seafloor sediments. Temperature and pressure changes
caused by drilling, or even by natural conditions, can activate the release of 160
cubic feet of gas from one cubic foot of methane, collapsing surrounding
sediment, and thus destabilizing the drilling foundation. Hydrates can also
present well-control problems. As hydrocarbons are produced and transported in
cold temperatures and high pressures, hydrates can form and block the flow
through deep pipelines and other conduits. Government, academic, and industry
52
research programs on hydrates and associated flow problems begun in the 1990s
are continuing.167
Knowledge about localized geology, types of hydrocarbons, and pressure profiles
in ultra-deepwater wells is still not thoroughly developed. Geological conditions
are complicated and vary from prospect to prospect, and from well to well. Each
well, indeed, has its own “personality” that requires maintaining an extremely
delicate balance between the counteracting pressures of the subsurface
formation and the drilling operation. Targets are extremely deep. Unforeseen
circumstances arise, such as in 2002, when Shell was forced to abandon drilling an
$80 million well at a prospect called Deep Mensa in the Mississippi Canyon after
the drill bit got stuck at nearly 28,000 feet attempting to drill through fractured
rock. 168 Beneath the salt, pressures in the pores of the sediment are difficult to
predict. Imaging under the salt and maintaining well control in drilling through it
continue to present complex problems. Hydrocarbons in the Lower Tertiary are
biodegraded, and thus thicker and with higher viscosity than the fluids found in
younger rocks. Finally, ultra-deepwater developments are a long distance from
shore and far from established infrastructure. As a BP technical paper prepared
for the May 2010 Offshore Technology Conference noted, “The trend of
deepwater discoveries in the [Gulf of Mexico] is shifting toward one with greater
challenges across many disciplines represented by the conditions of Lower
Tertiary discoveries.” 169
2003-08: Oil prices go up
so does interest in exploration
Nevertheless, the challenges seemed manageable and the rewards appeared
worth the perceived risk. The offshore industry had enjoyed a long run in the Gulf
without an environmental catastrophe. The hurricanes of mid-decade had caused
widespread damage, but not a major offshore spill. In recent years, the industry
had touted its relatively clean record in the Gulf as a justification to allow
exploration elsewhere. As oil prices climbed from 2003 to 2008, peaking at over
$140 per barrel, so did the industry’s interest in exploring other frontier areas,
especially offshore Alaska. In 2007, Shell and Total bid aggressively for federal
leases offered in the Beaufort Sea, and in 2008, Shell spent $2.1 billion for oil
leases in the Chukchi Sea. The following year, however, a lawsuit in a federal
appeals court challenging the Minerals Management Service’s environmental
53
studies preceding the sale held up applications for permits to drill on these
leases. 170
2008: Presidential election
lifting the drilling moratorium
on east and west coasts
Still, from 2008 through early 2010, both government and industry were largely
bullish about the potential of offshore drilling for the nation’s future. Not
incidentally, both were earning even greater revenues from ever-more ambitious
exploration. Despite the impasse in Alaska, long-standing political opposition to
offshore drilling along the U.S. coastline outside of the Gulf of Mexico, in places
like Virginia, Florida, and Alaska, appeared to be weakening. In July 2008, as the
U.S. presidential campaign was heating up, sitting president George W. Bush lifted
the presidential moratorium on offshore drilling, a policy initiated by his father
George H.W. Bush and renewed by President Bill Clinton. Crowds chanted “Drill,
Baby, Drill!” at the Republican convention, and Republican nominee John McCain
adopted former House speak Newt Gingrich’s slogan, “Drill Here, Drill Now, Pay
Less,” as the basis for his energy policy. Democratic nominee, Barack Obama, and
House speaker, Nancy Pelosi, initially resisted any talk of lifting the congressional
moratorium, but softened their positions in hopes of achieving a compromise that
would lead to broader energy policy reform. In September 2008, as national
attention turned to the dire financial crisis, the House let the moratorium expire
and then passed an appropriations bill that did not include Department of the
Interior funding bans, with an exception for the existing moratorium on leasing in
the Eastern Gulf of Mexico enacted by Congress in 2007.
The political process moved forward to loosen restrictions on offshore drilling. On
his last day in office, President Bush released for public comment a Draft Proposed
5-Year OCS Oil and Gas Leasing Program that included lease sales in four areas off
Alaska, two areas off the Pacific coast, three areas in the Gulf of Mexico, and three
areas in the Atlantic. Shortly after taking office, Obama’s secretary of the Interior,
Ken Salazar, announced his offshore energy strategy, which included an extension
of the comment period on Bush’s Draft Proposed Program. On March 30, 2010,
President Obama, as part of “expanded energy development,” scaled back the
Bush administration’s proposal, including the cancellation of five Alaska lease
sales (but not existing leases), the postponement of a lease sale offshore Virginia,
and the removal from consideration of leasing in the Pacific. But Obama also gave
the go-ahead for studies of potential development in the Eastern Gulf, the Chukchi
54
and Beaufort Seas, and the Mid- and South-Atlantic. With the exception of
Eastern Gulf, the “new areas” were “opened” by President Bush’s draft five-year
plan. Nevertheless, Obama’s announcement signaled a shift toward reconsidering
the expansion of offshore drilling for the first time in at least two decades. The
president defended his position by observing, “oil rigs today generally don’t cause
spills.” 171
As President Obama spoke, Transocean’s Deepwater Horizon—fresh from
completing BP’s spectacular find at Tiber a few months earlier—was busy drilling
on BP’s Mississippi Canyon 252 lease, in approximately 5,000 feet of water. BP
had named the prospect Macondo, after the fictional town in Gabriel Garcia
Marquez’s 1970 novel, One Hundred Years of Solitude. The fate of the town of the
Macondo, as described in a memorable passage by Marquez, presaged the fate of
the Macondo well and summed up the challenges facing the industry as a whole
as it plumbed the depths of the Gulf:
It was as if God had decided to put to the test every capacity for surprise
and was keeping the inhabitants of Macondo in a permanent alternation
between excitement and disappointment, doubt and revelation, to such an
extreme that no one knew for certain where the limits of reality lay.172
1
I.W. Alcorn, “Marine Drilling on the Gulf Coast,” Drilling and Production Practice (American
Petroleum Institute 1938): 40-45; I.W. Alcorn, “Derrick Structures for Water Locations,” Petroleum
Engineer (March 1938): 33-37; “First Well in Gulf of Mexico Was Drilling Just 25 Years Ago,”
Offshore (October 1963): 17-19.
2
Richard Nehring, “Oil and Gas Resources,” in The Gulf of Mexico Basin, ed. Amos Salvador
(Boulder, CO: Geological Society of America, 1991), 445-494.
3
J. Burney Courtney quoted in Tom Zoellner, “Oil and Water: The Adventure of Getting One from
Deep Beneath the Other,” Invention and Technology (Fall 2000): 48.
55
4
Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power (New York: Simon and
Schuster, 1992), 409.
5
Joseph Pratt, Tyler Priest, and Christopher Castaneda, Offshore Pioneers: Brown & Root
and the History of Offshore Oil and Gas (Houston: Gulf Publishing, 1997), 15-52, 137-157;
Lauren Penney, “In the Wake of War: World War II and the Offshore Oil and Gas Industry,” History
of the Offshore Oil and Gas Industry in Southern Louisiana: Vol. 1: Papers on the Evolving Offshore
Industry, MMS OCS Study 2004-049 (2008), 37-65. Available at
https://www.gomr.mms.gov/homepg/espis/espisfront.asp.
6
Pratt, Priest, and Castaneda, Offshore Pioneers, 21-25.
7
See Tyler Priest, “Claiming the Coastal Sea: The Battle for the Tidelands, 1937-1953,” History
of the Offshore Oil and Gas Industry in Southern Louisiana: Vol. 1, 11-32.
8
Quoted in D.B. Hardeman and D.C. Bacon, Rayburn: A Biography (Austin: Texas Monthly Press,
1987), 381.
9
Thunder Bay film trailer, 1953.
11
On the early federal regulatory program, see Tyler Priest, “Auctioning the Ocean: The Creation
of the Federal Offshore Leasing Program, 1954-1962,” History of the Offshore Oil and Gas Industry
in Southern Louisiana: Vol. 1, 93-113.
12
Tyler Priest, “Extraction Not Creation: The History of Offshore Petroleum in the Gulf of Mexico,”
Enterprise & Society Vol. 8, No. 2 (June 2007): 240-241.
13
Quoted in Alden J. LaBorde, My Life and Times (New Orleans: LaBorde Printing Company, 1996),
174.
14
James W. Calvert, “Gulf Offshore Activity Booming,” World Petroleum (January 1957): 48.
15
Ben C. Belt, “Louisiana and Texas Offshore Prospects,” Drilling (March 1956): 119; “Special
Offshore Report,” World Oil (May 1957): 118.
16
Calvert, “Gulf Offshore Activity Booming,” 48.
17
Tyler Priest, The Offshore Imperative: Shell Oil’s Search for Petroleum in Postwar America
(College Station: Texas A&M Press, 2007), 69-71.
18
Pratt, Priest, and Castaneda, Offshore Pioneers, 36-48; Priest, The Offshore Imperative, 74-81.
19
Priest, The Offshore Imperative, 81-91.
20
Ibid., 99.
56
21
The average depths of federal leases were 67 feet in 1954-1955 and 89 feet in 1960. Tract sizes
in the Gulf of Mexico were typically 5,760 acres. Initial federal OCS leasing maps were extensions
of the leasing maps of Texas and Louisiana. A regular block offshore Louisiana consisted of 5,000
acres and those offshore Texas were 5,760 acres, the maximum allowed by the OCSLA. Priest,
“Auctioning the Ocean,” 96, 112.
22
Ibid., 113.
23
Diane Austin, “Coastal Exploitation, Land Loss, and Hurricanes: A Recipe for Disaster,” American
Anthropologist Vol. 108, No. 4 (December 2006): 681.
24
U.S. Department of the Interior, “Petroleum and Sulfur on the U.S. Continental Shelf,” internal
study, August 1969, box 134, Central Classified Files, 1969-1972, Record Group 48, Records of the
Secretary of Interior, National Archives and Records Administration (NARA), College Park, MD.
25
John Rankin, Offshore Energy Center Hall of Fame Interview by Tyler Priest, Houston, TX,
September 30, 2000.
26
Priest, “Auctioning the Ocean,” 113.
27
On Project Mohole and JOIDES, see David K. van Keuren, “Breaking New Ground: The Origins of
Scientific Ocean Drilling,” in Helen M. Rozwadowski and David K. van Keuren, eds., The Machine in
Neptune’s Garden: Historical Perspectives on Technology and the Marine Environment (Sagamore
Beach, MA: Science History Publications, 2004), 183-210. On Shell’s Eureka project, see Priest, The
Offshore Imperative, 97, 218.
28
F. P. Dunn, “Deepwater Production: 1950-2000,” Offshore Technology Conference (OTC) Paper
7627, (1994), 922-924.
29
Priest, The Offshore Imperative, 127-130.
30
“Oil Majors Wonder,” Financial Times (April 25, 2002): 29.
31
Dunn, “Deepwater Production: 1950-2000,” 923.
32
Cliff Hernandez interview by Andrew Gardner, May 1, 2001, New Iberia, LA, Houston History
Archives, M.D. Anderson Library Special Collections, University of Houston, Houston, TX. This
interview is one of approximately 450 oral histories conducted for MMS OCS Study 2004-049
(2008). Many oral histories in the collection describe working conditions offshore from the 1920 to
the 1970s. A guide to the interviews can be found at
http://archon.lib.uh.edu/?p=collections/findingaid&id=231&q=&rootcontentid=67211#id67211.
Volumes II, III, and IV of the study contain detailed oral history narratives of the southern Louisiana
communities of Bayou Lafourche, Morgan City, and Terrebonne Parish. These volumes are
available at https://www.gomr.mms.gov/homepg/espis/espisfront.asp.
Personal injury lawsuits beginning in the 1960s contributed to increasing attention to
safety in offshore operations. Initially, the Longshoreman and Harbor Workers’ Compensation Act
(LHWC) of 1927 covered most offshore workers. This act was designed to fill a gap between the
57
Jones Act (1920), which protects seaman, and state workers’ compensation, which covers injuries
incurred in a particular state. LHWC provides medical and disability benefits, rehabilitation
services, and wrongful death benefits to survivors for injuries, illness, or death sustained during
maritime employment on navigable waters of the United States. Maritime employment includes
loading/unloading, building, and repairing vessels and offshore structures. In 1959, however, the
United States Fifth Circuit Court of Appeals ruled (Offshore Co., v. Robison, 266 F.2d) that workers
regularly assigned to “special purpose vessels” such as mobile offshore drilling units could be
treated as seamen under the Jones Act. The significance of this decision was that the Jones Act not
only entitled seaman to “transportation, wages maintenance and cure,” which was equivalent to
workers’ compensation for seaman, but allowed injured seaman to obtain damages for pain and
suffering from their employers if it could be determined that the injuries resulted from negligence
by the shipowner, captain, or crew. After the Robison decision, a steady stream of personal injury
lawsuits hit offshore operators, drillers, and construction companies. For information on the legal
history of the Jones Act and the LHWCA, see The Steinberg Law Firm, Offshore Injury Litigation,
http://www.offshoreinjury.net/.
33
Ken Arnold interview with Tyler Priest, May 10, 2004, Houston, TX, Houston History Archives,
M.D. Anderson Library Special Collections, University of Houston, Houston, TX.
34
Don E. Kash, et. al., Energy Under the Oceans: A Technology Assessment of Outer Continental
Shelf Oil and Gas Operations (Norman: University of Oklahoma Press, 1973), 104.
35
U.S.G.S., “Monthly Engineering Reports,” Volume 128, December 1958 and Volume 144,
February 1960, RG 57, Records of the U.S. Geological Survey, NARA.
36
Kash, et. al., Energy Under the Oceans, 105.
37
Neil R. Etson to President Nixon, March 18, 1970, Central Classified Files, 1968-1974, Box 71, RG
57, Records of the U.S. Geological Survey, NARA.
38
Kash, et. al., Energy Under the Oceans, 104.
39
Robert E. Kallman and Eugene D. Wheeler, Coastal Crude in a Sea of Conflict (San Luis Obispo:
Blake Printery and Pulbishing, 1984), 63.
40
Riley E. Dunlap and Angela G. Mertig, American Environmentalism: The U.S. Environmental
Movement, 1970-1990 (Philadelphia: Taylor and Francis, 1992).
41
All Presidential statements can be found at John T. Woolley and Gerhard Peters, The American
Presidency Project [online], Santa Barbara, CA, available at http://www.presidency.ucsb.edu/.
42
Russell Wayland, “The New Federal OCS Regulations in the Light of Santa Barbara,” Society of
Petroleum Engineers (SPE) Paper, 2780 (1969); Richard B. Krahl and David W. Moody, “Gulf Coast
Lease Management Inspection Program,” OTC Paper 1714 (1972), 846.
43
M.D. Reifel, “Offshore Blowouts and Fires,” in ETA Offshore Seminars, Inc., The Technology of
Offshore Drilling, Completion and Production (Tulsa: The Petroleum Publishing Company, 1976),
58
239-257; “The Wicked Witch is Dead,” Shell News No. 2 (1978): 2-8; and R.C. Visser, “Offshore
Platform Accidents, Regulations, and Industry Standards,” OTC Paper 7118 (1993). Shell managed
to keep most of the wells burning above the platform, thus minimizing the spill in the water.
However, there is some expert opinion that oil companies greatly underestimated the volumes of
these spills, and the leaked oil may have been much greater than reported. See Steve Mufson,
“Federal Records Show Steady Stream of Oil Spills in Gulf since 1964,” Washington Post (July 24,
2010).
44
Krahl and Moody, “Gulf Coast Lease Management Program;” Donald Solanas, “Update – OCS
Lease Management Program,” OTC Paper 1754 (1973); E.W. Standley, Interior Liaison
Representative, to Jack W. Boller, Assistant Executive Secretary, Marine Board, National Academy
of Engineering, February 15, 1972, Central Classified Files, 1969-1972, Box 136, Part 13, RG 48,
Records of the Secretary of Interior, NARA.
45
K.E. Arnold, P.S. Koszela and J.C. Viles, “Improving Safety of Production Operations in the U.S.
OCS,” OTC Paper 6079 (1989), 349-350.
46
Dunn, “Deepwater Production,” 923-924.
47
Peter Lovie, “Classification and Certification of Offshore Drilling Units,” in ETA Offshore
Seminars, The Technology of Offshore Drilling, Completion and Production, 389-413.
48
See data in National Academy of Sciences, Committee on Assessment of Safety of OCS Activities,
Safety and Offshore Oil (Washington D.C.: National Academy Press, 1981).
49
The rate of fires and explosions increased steady during the 1970s, from about 12 in 1970 to
more than 30 in 1978, but the number of wells completed rose from 5,584 in 1970 to 9,140 in
1979. Ralph G. McTaggart, “Offshore Mobile Drilling Units,” in ETA Offshore Seminars, The
Technology of Offshore Drilling, Completion and Production, 24-25.
50
E.P. Danenberger, Outer Continental Shelf Drilling Blowouts, 1971-1991, OTC Paper 7248 (1993).
51
As of 2006, the system had a total length of 46,876 miles, the largest public works project in
history. It took 35 years to complete, at a cost of $114 billion (adjusted for inflation, $425 billion in
2006 dollars). U.S. Department of Transportation, Federal Highway Administration,
http://www.fhwa.dot.gov/interstate/faq.htm#question3.
52
U.S. Energy Information Administration (EIA), Annual Energy Review, Petroleum, Table 5.13.c,
http://www.eia.gov/emeu/aer/petro.html. On the forgotten victory of energy conservation and
efficiency, see Jay Hakes, A Declaration of Energy Independence: How Freedom from Foreign Oil
Can Improve National Security, Our Economy, and the Environment (Hoboken: John Wiley & Sons,
2008), 41-71.
53
“Bidders Snub Most Deepwater Tracts,” The Oil and Gas Journal (April 8, 1974): 36.
54
Priest, The Offshore Imperative, 191-195.
59
55
Stephen P.J. Cossey, “Celebrations Began with Cognac,” AAPG Explorer (September 2004),
http://www.aapg.org/explorer/2004/09sep/gom_history.cfm.
56
Priest, The Offshore Imperative, 196-201.
57
Pratt, Priest, and Castaneda, Offshore Pioneers, 83-90.
58
Austin, “Coastal Exploitation,” 682; Woody Falgoux, Cajun Mariners: The Race for Big Oil
(Thibodaux, LA: Stockard James, 2007).
59
“Gulf Lease Sale Shatters Two Records,” Oil & Gas Journal (October 6, 1980): 34; Charlie
Blackburn quoted in Priest, The Offshore Imperative, 216; D.A. Holmes, “1970-1986 Lookback of
Offshore Lease Sales in the Gulf of Mexico Cenozoic,” Interoffice Memorandum, Shell Offshore Inc.
(August 24, 1987).
60
Priest, The Offshore Imperative, 209-215.
61
Get Oil Out! website, http://www.getoilout.org/about.htm.
62
Kallman and Wheeler, Coastal Crude in a Sea of Conflict, 72.
63
The Coastal Zone Management Act of 1972 gave coastal states the authority to ensure that OCS
development was “consistent” with state plans for managing their coasts, but this was not a
powerful enough tool to influence the location and amount of leases offered, so political actors
still demanded greater voice. On post-Santa Barbara environmental policy developments, see
Charles Frederick Lester, “The Search for Dialogue in the Administrative State: The Politics, Policy,
and Law of Offshore Development” (Ph.D. Dissertation, UC-Berkeley, 1992).
64
Robert Gramling, Oil on the Edge: Offshore Development, Conflict, Gridlock (Albany: SUNY Press,
1996), 199-123.
65
Richard Charter, “People Power: How Citizen Action Works in California,” in Dwight Holing,
Coastal Alert: Ecosystems, Energy, and Offshore Oil Drilling (Washington DC: Island Press, 1990),
55.
66
“Problems with Government,” Ocean Industry (April 1982): 21.
67
Exxon’s Lena, for example, achieved a peak well rate of only 500 to 2,200 barrels per day.
Cossey, “Celebrations Began with Cognac.”
68
Juan Carlos Boué with Edgar Jones, A Question of Rigs, of Rules, or of Rigging the Rules?
Upstream Profits and Taxes in U.S. Gulf Offshore Oil and Gas (Oxford: Oxford University Press,
2007), 17.
69
Rich Sears, “A Brief History of Deepwater,” draft prepared for the National Oil Spill Commission,
August 2010.
60
70
Paul Voosen, “Gulf of Mexico’s Deepwater Oil Industry Is Built on Pillars of Salt,” New York Times
(July 28, 2010); Gary Steffens and Neil Braunsdorf, Shell Exploration and Production Technology
Company, “The Gulf of Mexico Deepwater Play: 50 Years from Concept to Commercial Reality,”
AAPG Distinguished Lecture, 1997-1998.
71
“New MMS Setup Aims to Smooth OCS Leasing,” Oil & Gas Journal (June 7, 1982): 66-67. The
DOI created the MMS after the Linowes Commission – an independent panel charged with
allegations of revenue theft – issued a report taking the federal government to task for gross
mismanagement of mineral royalties. A copy of the report can be found at the Project On
Government Oversight website, http://pogoblog.typepad.com/pogo/2010/07/is-interior-relyingon-mms-to-reform-itself.html.
72
Sale 53 was held, but leases were not awarded. “Offshore Leasing Wins in High Court,” Oil & Gas
Journal (January 16, 1984): 60-61.
73
Committee on Marine Area Governance and Management, National Research Council, Striking a
Balance: Improving Stewardship of Marine Areas (National Academy of Sciences, 1997), 37.
74
The historical causes of the destruction of the state’s coastal wetlands are complex. Sugar and
th
th
timber barons in the late 19 and early 20 centuries amassed large landholdings and transformed
the landscape’s hydrology with levees, drainage ditches, and canals. Decades of extractive activity
and manipulation of waterways had gradual but cumulative impacts on coastal wetlands. Their
erosion accelerated after World War II with the dredging of pipeline canals to service the
proliferation of offshore platforms. These canals provided conduits for salt-water intrusion, while
their spoil banks created ponds that drowned sections of the marsh. After years of debate,
scientific opinion has moved against the argument that oil field canals are primarily responsible for
wetlands destruction. The leading factors are regional subsidence and the prevention of sediment
replenishment by levees on the Mississippi River. Still, credible scientific estimates find oil field
canals responsible for at least 10 to 30 percent of the 1,900 square miles of coastal land loss in
Louisiana between 1932 and 2000. Austin, “Coastal Exploitation,” 671-691; Tyler Priest and Jason
P. Theriot, “Who Destroyed the Marsh? Oil Field Canals, Coastal Ecology, and the Debate over
Louisiana’s Shrinking Wetlands,” Economic History Yearbook 2 (2009): 69-80.
75
“Critical Issues in OCS Activity Could Be Resolved This Summer,” Oil & Gas Journal (July 2, 1984):
19-24. An obscure provision in the 1978 OCSLA amendments, labeled section 8g, had directed the
federal government to share a “fair and equitable” portion of revenue derived from oil and gas
fields that crossed into state territory and set up an escrow fund to collect revenues from the
boundary section. Political fighting and litigation ensued over determining what was “fair and
equitable.” The settlement gave coastal states 27 percent of rents, bonuses, and royalties
accumulated since 1978, along with a share of future royalty revenues. Donald W. Davis and
Rodney E. Emmer, “8g – ‘Oil on the Line,’” Paper Presented at Coastal Zone 87, Fifth Symposium on
Coastal and Ocean Management, Seattle, WA, May 26-29, 1987.
76
“A Show of Faith in the Oil Industry,” Newsweek (June 6, 1983): 77.
77
Bureau of Ocean Energy Management, Regulation, and Enforcement, Gulf of Mexico Oil and Gas
Leasing Offerings, http://www.gomr.boemre.gov/homepg/lsesale/swiler/swiler.html.
61
78
Priest, The Offshore Imperative, 221-222.
79
During 1983-1986, Shell Oil won 252 of the 327 (77 percent) of all tracts awarded in the Gulf of
Mexico. Priest, The Offshore Imperative, 221-226, 242-243.
80
“The Time to Start Looking is Now,” Shell News 4 (1984): 16.
81
By 1990, Americans consumed less gasoline on a per capita basis (437 gallons per year) than they
did in 1979. U.S. Energy Information Administration (EIA), Annual Energy Review, Petroleum, Table
5.13.c, http://www.eia.gov/emeu/aer/petro.html.
82
Gramling, Oil on the Edge, 118.
83
Steffens and Braunsdorf, “The Gulf of Mexico Deepwater Play.”
84
“Bullwinkle Takes Shape,” Shell News 6 (1987): 2-7; “Rising Above the Crowd,” Shell News 6
(1988): 28-34.
85
“How Conoco Developed the Tension-Leg Platform,” Ocean Industry (August 1984): 35-46.
86
Tom Curtis, “Lifestyles of the Rich and Bankrupt,” Texas Monthly (March 1988): 90.
87
Congress of the United States, Office of Technology Assessment, Oil and Gas Technologies for
the Arctic and Deepwater: Summary (Washington: GPO, 1985), 22-23.
88
On the struggle over Bristol Bay, see Lester, “The Search for Dialogue in the Administrative
State,” 113-146.
89
Quoted in Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power (New York: Simon
and Schuster, 1992), 733. On failed exploration ventures in Alaska, see Priest, The Offshore
Imperative, 212-215.
90
Priest, The Offshore Imperative, 209-215.
91
Steffens and Braunsdorf, “The Gulf of Mexico Deepwater Play.”
92
BOEMRE, Gulf of Mexico Oil and Gas Leasing Offerings,
http://www.gomr.boemre.gov/homepg/lsesale/swiler/swiler.html.
93
Auger was not Shell’s first deepwater discovery beyond the shelf. Discoveries at Tahoe (1984),
Popeye (1985), Powell (1985), Mensa (1986) preceded Auger. On the history of Bullwinkle and
Auger, see Priest, The Offshore Imperative, 237-251. Also see Auger: Moving into the Future
(Houston: Hart Publications, 2001).
62
94
On the history of Mars, see Priest, The Offshore Imperative, 253-261; Shell’s Mars Mission: A
Deepwater Odyssey (Houston: Hart Publications, 1999); and “Launch Pad into the Deep,” Houston
Chronicle (August 17, 1997).
95
st
Bob Horton quoted in Tom Bower, Oil: Money, Politics, and Power in the 21 Century (New York:
Grand Central Publishing, 2009), 19.
96
“U.S. E&P Surge Hinges on Technology, Not Oil Price,” Oil & Gas Journal (January 13, 1997).
97
On the development of 3-D seismic, see William A. Schneider, “3-D Seismic: A Historical Note,”
The Leading Edge (March 1998): 375. On its impact in the Gulf of Mexico, see “Looking Ahead in
Marine and Land Geophysics – A Conversation with Woody Nestvold and Ian Jack,” The Leading
Edge (October 1995): 1061-1067.
98
“Exploring the Ocean’s Frontiers,” Time (December 17, 1990): 98; “Offshore Oil: How Deep Can
They Go?” Popular Science (January 1992): 80-97.
99
“Exploring the Ocean’s Frontiers,” 98.
100
“Oil and Gas Technology Development,” Topic Paper #26, National Petroleum Council Global Oil
& Gas Study, November 22, 2006, 16. This topic paper was one of 38 working documents used to
produce the 2007 NPC study, Facing the Hard Truths About Energy
http://www.npchardtruthsreport.org/.
101
S.A. Wheeler, W.F. Wallace, J.P Wilbourn, “The Deep Star Project: An Overview of Industry
Cooperation,” OTC Paper 7264 (1993).
102
Susanne S. Pagano, “Offshore Drilling, Production – New Waves of Technology, Sea Technology
(April 1991): 19-21; “There’s Oil Down There . . . Way Down There,” Texas Shores Vol. 31, No. 1
(Spring 1998): 14-15.
103
Shell’s engineers received strong indication that this was possible when, in 1992, they increased
production from Bullwinkle’s wells to 7,000 barrels per day without any loss of bottom-hole, drawdown pressure. Priest, The Offshore Imperative, 243-251.
104
“Shell Marks Progress in Deepwater Gulf,” Oil & Gas Journal (November 13, 1995);
“Debottlenecking Removes Auger Production Constraints,” Oil & Gas Journal (November 11, 1996).
105
Priest, The Offshore Imperative, 251-252.
106
MMS, “Shell to Pay $49 Million in Settlement Agreement with Minerals Management Service,”
News Release, August 5, 2003.
107
Boué and Jones, A Question of Rigs, 130.
108
F. Jay Schempf, “New Study Finds Port Fourchon ‘Vital’ to U.S. Economy,” Offshore (March 1,
2008).
63
109
Quoted in Helen Thorpe, “Oil and Water,” Texas Monthly (February 1996): 144.
110
D.G. Godfrey, J.P. Haney, A.E. Pippin, C.R. Stuart, D.D. Johnston, and R.H. Orlean, “The Mars
Project Overview,” OTC Paper 8368 (1997).
111
But, as a 1997 McKinsey study also warned, alliance networks could create problems. “When
more than two join the dance,” the authors write, “the challenges multiply: managing
communications, tailoring financial arrangements to reflect each partner’s contribution and ability
to absorb risk, and managing the risk that proprietary capabilities may be transferred
inadvertently.” David Ernst and Andrew M.J. Steinhubl, “Alliances in Upstream Oil and Gas,”
McKinsey Quarterly 2 (1997): 153.
112
Jeff Ryser, “Hot Play in the Gulf,” Texas Business (August 1995): 33.
113
“The Cloning of Mars,” Shell News 64, No. 1 (1996): 8-13; “Shell Oil Goes Deep in Gulf,” Houston
Chronicle (April 9, 1999): 1c, 8c; Priest, The Offshore Imperative, 260-262.
114
Charles Conn and David White, Revolution in Upstream Oil and Gas (Sydney and Melbourne:
McKinsey & Company Asia-Pacific Energy Practice, 1994), 64.
115
For example, Shell’s West Delta 13 platform served Popeye and Mensa subsea gas production;
Cardamom, Oregano, Macaroni, and Habanero all tied into Auger; Troika was the first of several
fields to be tied into Bullwinkle; and Europa and Princess linked into Mars.
116
Located in 115 feet of water about 18 miles off the Louisiana coast, LOOP was the nation’s only
deepwater oil port. It was built in the late 1970s to accommodate the Very Large Crude Carriers
(VLCCs) importing oil into to the United States. In the early 1990s, LOOP began to suffer from the
changing global oil market. Rising imports from South America and Canada to the United States
meant fewer big tankers calling to port at LOOP. In order to diversify its operations and stay
financially competitive, LOOP obtained approval from federal regulators to modify its existing
underground storage at the Clovelly salt dome, about 48 miles south of New Orleans, to take on
new sources of domestic production from the emerging deepwater operations. John Kingston,
“Moody’s Reviews LOOP, Cites S. American Imports,” Platt’s Oilgram News (July 26, 1995): 3; A. D.
Koen, “Shifting pattern of U.S. oil import sources tests viability of deepwater port projects,” Oil &
Gas Journal (August 21, 1995): 22; Mary Judice, “Out of the LOOP,” Times Picayune (September 17,
1995): F-1, F-3. The passage of Deepwater Port Modernization Act of 1996 confirmed LOOP’s
statutory authority to receive oil from the deepwater OCS.
117
C.G. Steube, “Addressing Transportation Needs for Deepwater Gulf of Mexico,” OTC Paper
13169 (2001); Boué and Jones, A Question of Rigs, of Rules, or of Rigging the Rules? 324-327. The
three corridors are the Eastern Pipeline, service by the Delta Pipeline System; the Central Pipeline,
serviced by the Amberjack, Mars, Eugene Island, and Poseidon systems, and the Western Pipeline,
serviced by the Ship Shoal system. Maps of Shell’s systems can be found at:
http://www.shell.us/home/content/usa/products_services/solutions_for_businesses/pipeline/cru
de_system_maps_spec/#subtitle_3.
64
118
Boué and Jones, A Question of Rigs, 17.
119
Installations, Removals, and Cumulative Totals of Offshore Production Facilities in Federal
Waters: 1959-2010, www.boemre.gov/stats/PDFs/OCSPlatformActivity.pdf.
120
Dolly Jorgenson, “An Oasis in a Watery Desert: Discourses on an Industrial Ecosystem in the Gulf
of Mexico Rigs-to-Reefs Program,” History and Technology Vol. 25, No. 4 (November 2009): 343364.
121
Carolita Kallaur, Associate Director, MMS, “The Deepwater Gulf of Mexico – Lessons Learned,”
presentation to the Institute of Petroleum’s International Conference on Deepwater Exploration
and Production, London, UK, February 22, 2001.
122
Analysts have long debated whether the GOM Federal OSC fiscal regime is overly generous.
Defending royalty relief in 1999 and 2000, Andrew Derman and Daniel Johnston argued that most
government “take” statistics are based upon "the division of profits from an undiscounted
(nominal) and unrisked point of view," which ignores that cost and lead times are greater in
deepwater than elsewhere, and that threshold field size for development is greater because of lack
of infrastructure. They objected to the fact that bonuses paid on blocks where no discovery is
made were not incorporated into typical take statistics, and that when bonuses were included for
blocks on which there is a discovery, they were not calculated on a net present value (NPV) basis.
There is a lag of several years between bonus payment and discovery. On a NPV basis, bonuses
can reach 20% of discounted gross revenues, and government take in the GOM (bonues, royalties,
Federal income tax) then approaches 70 percent. Andrew Derman and Daniel Johnston, “Bonuses
Enhance Upstream Fiscal System Analysis,” Oil & Gas Journal (February 8, 1999); and Derman and
Johnston, “Royalty Relief Vital for Continued Deepwater Development,” Oil & Gas Journal (May 8,
2000).
There are several problems with Derman's and Johnston's analysis. First, they greatly
underestimate discounted revenues from deepwater. In Shell's major TLP projects in the 1990s,
bonus payments did not come close to 20% of the project's discounted gross revenues. Second,
when estimating Federal income tax liabilities, Derman and Johnston use the marginal rate of 35
percent, instead of the average effective tax rate, which is closer to 10% or less for upstream
income generated in the GOM Federal OCS, due to the fact that upstream activities are not ringfenced for tax purposes. Aggregate dry hole expenses and the carrying costs of a lease inventory
are corporate-wide costs, not project costs. So, for big companies like Shell and BP, with high
exploration success in deepwater, large lease inventories, and major capital expenditures, the U.S.
OCS fiscal regime can be very generous. For companies with more dry holes – and thus a higher
ratio of bonuses paid for unproductive tracts -- and a small share of deepwater production, the
fiscal regime may not be that favorable. See critique in Boué and Jones, A Question of Rigs, 236245. Also, in 2007, a U.S. Government Accountability Office study found that the U.S. government
“receives one of the lowest government takes in the world.” U.S. GAO, Oil and Gas Royalties: A
Comparison of the Share of Revenue Received from Oil and Gas Production by the Federal
Government and Other Resource Owners (Washington, D.C.; U.S. GAO, 2007), 2. That same year,
deepwater royalty rates increased from 1/8 (12.5%) to 1/6 (16.7%). Nevertheless, U.S.
government take from offshore is still relatively small. In April 2010, right before the DH spill, DOI
created a commission to study U.S. royalty rates in comparison with other countries:
http://www.doi.gov/news/pressreleases/2010_04_12_release.cfm.
65
123
Boué and Jones, A Question of Rigs, 189. The authors point out that the Deepwater Royalty
Relief Act was not a politically popular measure and that it passed only because it was appended to
another bill that enjoyed broad support: the repeal of the ban on Alaska oil exports. In 2006, the
Department of the Interior released a study estimating that royalty relief accounted for very small
percentage of deepwater production increases, but that the vague and poorly worded law had cost
the government billions of dollars. See “Incentives on Oil Barely Help U.S., Study Suggests,” New
York Times (December 22, 2006); and “Vague Law and Hard Lobbying Add Up to Billions for Big
Oil,” New York Times (March 27, 2006).
A 2008 GAO study found that Deepwater Royalty Relief granted on Gulf leases issued
between 1996 and 2000 would cost the federal government between $21 and $53 billion
depending on the outcome of litigation, initiated by Kerr-McGee and carried on by Anadarko,
challenging the authority of Interior to place price thresholds to remove royalty relief on certain
leases. U.S. GAO, Oil and Gas Royalties: The Federal System for Collecting Oil and Gas Revenues
th
Needs Comprehensive Reassessment (Washington, D.C.: U.S. GAO, 2008). In January 2009, the 5
Circuit Court in New Orleans ruled in favor of Anadarko, and in October 2009 the U.S. Supreme
Court refused to hear the federal government’s appeal. So the ultimate cost will be closer to the
higher number in the GAO study.
124
“High Bids Total $307 Million in Central Gulf of Mexico Lease Sale 152,” MMS Press Release,
May 10, 1995, http://www.boemre.gov/ooc/press/1995/50037.txt.
125
Voosen, “Gulf of Mexico’s Deepwater Oil Industry Is Built on Pillars of Salt;” Thorpe, “Oil and
Water,” 140-141.
126
Ten years later, Exxon developed the prospect as a subsea natural gas development called Mica.
127
Scott L. Montgomery and Dwight Moore, “Subsalt Play, Gulf of Mexico: A Review,” AAPG
Bulletin Vol. 81, No. 6 (June 1997): 875-876.
128
Thorpe, “Oil and Water,” 141.
129
David Brown, “Salt Stymied GOM Progress,” AAPG Explorer (March 2008),
http://www.aapg.org/explorer/2008/03mar/salt.cfm.
130
Rhonda Duey, “Pioneering a Global Play,” Hart’s E&P (July 1, 2009); Thorpe, “Oil and Water,”
142.
131
R.R. Israel, P. D’Ambrosio, A.D. Leavitt, J.M. Shaughnessey, and J. Sanclemente, “Challenges
Evolve for Directional Drilling Through Salt in Deepwater Gulf of Mexico,” Drilling Contractor
(May/June 2008), http://drillingcontractor.org/challenges-evolve-for-directional-drilling-throughsalt-in-deepwater-gulf-of-mexico-1622.
132
Steve Enger and Andy Logan, “Ultradeepwater Play Paces Gulf, North America,” Oil & Gas
Journal (November 5, 2001), http://www.ogj.com/index/article-display/125508/articles/oil-gasjournal/volume-99/issue-45/special-report/ultradeepwater-play-paces-gulf-north-america.html.
66
133
David Ivanovich, “Gulf is Heart of Deepwater Drilling,” Houston Chronicle (May 4, 1997): 4J.
134
Brian Knowlton, “Oil Growth Boomerangs on Houston,” International Herald Tribune (April 1,
2002).
135
David Townshend, “Golden Triangle Dominates,” Petroleum Economist (October 2002).
136
Dresser separated from Halliburton in 2001, and KBR was spun off from Halliburton in 2007.
137
Other major offshore drilling contractors include Diamond Offshore, ENSCO, Nabors Industries,
Noble Drilling, Pride International, and Saipem.
138
Tim Colton and LaVar Huntziner, A Brief History of Shipbuilding in Recent Times. (Alexandria,
VA: CNA Corporation, 2002); Mike Hunt and Lenny Gary, “Gulf of Mexico Fabrication Yards Built
5,500 Platforms Over 50 Years,” Offshore (January 2000).
139
BP’s official history through 1975 can be found in a three-volume series: Ronald W. Ferrier, The
History of the British Petroleum Company, Vol. 1: The Developing Years, 1901-1932 (Cambridge:
Cambridge University Press, 1982); J.H. Bamberg, The History of British Petroleum, Vol. 2: The
Anglo-Iranian Years, 1928-1945 (Cambridge: Cambridge University Press, 1994); and James
Bamberg, British Petroleum and Global Oil, 1950-1975: The Challenge of Nationalism (Cambridge:
Cambridge University Press, 2000). In 2007, Bamberg finished a fourth volume called Energy and
Enterprise: The Transformation of BP in the Second Era of Globalisation, which carried the history
forward to 2005, only to be informed that BP would not give permission to publish it, which was
the company’s right under the terms established in commissioning the study. See
http://www.britishscholar.org/sommarch2008.html.
140
“This Oil’s Domestic, but It’s Deep and It’s Risky,” New York Times (August 11, 2002). Beginning
in 1993, BP started self-insuring for the largest risks the company was taking. This overturned the
conventional practice followed by large companies to insure against large potential losses and selfinsure against smaller ones. The insurance markets did not have the capacity to underwrite large
and highly specialized exposures, like those encountered in deepwater. Neil A. Doherty and
Clifford Smith, “Corporate Insurance Strategy: The Case of British Petroleum,” Journal of Applied
Corporate Finance, Vol. 6, No. 3 (Fall 1993): 4-15.
141
BP’s acquisition of Arco included Vastar Resources, Arco’s Gulf of Mexico E&P subsidiary.
During 1996-1999, Vastar acquired a large number of deepwater leases.
142
Rainey quoted in Kathy Shirley,“Vision Led to Crazy Horse Find,” AAPG Explorer (March 2002),
http://www.aapg.org/explorer/2002/03mar/thunderhorse.cfm.
143
Ibid.
144
Rainey quoted in Bower, Oil, 24.
67
145
“Resolution Undergoing Revolution,” AAPG Explorer (March 2008): 16,
http://www.aapg.org/explorer/2008/03mar/resolution.cfm.
146
Rainey quoted in Bower, Oil, 23.
147
“Vision Led to Crazy Horse Find.”
148
“Payoff Is A Long Time in Coming,” Houston Chronicle (November 18, 2007), D1, D4.
149
Bower, Oil, 25; “Vision Led to Crazy Horse Find.”
150
Peter Lehner with Bob Deans, In Deep Water: The Anatomy of a Disaster, the Fate of the Gulf,
and Ending Our Oil Addiction (New York: The Experiment, 2010), 63.
151
“Deepwater GOM New Focus of BP Growth Strategy,” Oil & Gas Journal (August 19, 2002): 36.
152
“This Oil’s Domestic.”
153
“The Jack-2 Perspective,” Oil & Gas Journal (September 11, 2006): 17.
154
B.F. Thurmond, D.B.L. Walker, H.H. Banon, A.B. Luberski, M.W. Jones, and R.R. Peters,
“Challenges and Decisions in Developing Multiple Deepwater Fields,” OTC Paper 16573 (2004).
155
K.L. Marshall and G.H. Smith, “Inspection Management Experience for a Fleet of Spars in the
Gulf of Mexico,” OTC Paper 17619, May 2005; C. Jim Thibodeaux, R. Don Vardeman, and Charles E.
Kindel, “Nansen/Boomvang Projects: Overview and Project Management,” OTC Paper 14089
(2002).
156
Thurmond et al., “Challenges and Decisions in Developing Multiple Deepwater Fields.”
157
Bill Kirton, Gary Wulf, and Bill Henderson, “Thunder Horse Drilling Riser Break – The Road to
Recovery,” SPE Paper 90628 (2004).
158
Simon Todd and Dan Replogle, “Thunder Horse and Atlantis: The Development and Operation
of Twin Giants in the Deepwater Gulf of Mexico,” OTC Paper 20395 (2010).
159
“Thunder Horse Platform Payoff A Long Time Coming for BP,” Houston Chronicle (November 17,
2007).
160
Ibid.
161
“BP Sued by Watchdog Group over Atlantis Platform,” Bloomberg.com, September 13, 2010,
http://www.bloomberg.com/news/2010-09-10/bp-sued-over-alleged-safety-gaps-at-atlantisproduction-platform.html.
68
162
Det Norske Veritas, Technical Report, Minerals Management Service, Pipeline Damage
Assessment from Hurricane Ivan in the Gulf of Mexico, Report No. 440 38570, May 8, 2006.
Includes data on damages from hurricanes through 2005.
163
Lesley D. Nixon, Nancy K. Shepherd, Christy M. Bohannon, Tara M. Montgomery, Eric G. Kazanis,
and Mike P. Gravois, Deepwater Gulf of Mexico 2009: Interim Report of 2008 Highlights, OCS
Report, MMS 2009-016 (2009), https://www.gomr.mms.gov/homepg/espis/espisfront.asp.
164
“BP Taps Vast Pool of Crude in Deepest Oil Well,” Associated Press (September 2, 2009); “Shell’s
Perdido First to Produce in Key Deep Water Gulf Region,” Houston Chronicle (March 31, 2010);
“Chevron Plans New Floating City,” Houston Chronicle Energy Watch blog, FuelFix,
http://fuelfix.com/energywatch/2010/10/21/chevron-plans-new-floating-city/.
165
Frank Close, Bob McCavitt, and Brian Smith, “Deepwater Gulf of Mexico Development
Challenges Overview,” SPE Paper 113011 (2008), 2.
166
Melvyn Whitby, “Design Evolution of a Subsea BOP: Blowout Preventer Requirements Get
Tougher as Drilling Goes Ever Deeper,” Drilling Contractor (May 2007).
167
Mary C. Boatman and Jennifer Peterson, Oceanic Gas Hydrate Research and Activities Review,
OCS Report MMS 2000-017, U.S. Department of the Interior, MMS, Gulf of Mexico OCS Region,
2000.
168
Bower, Oil, 29-30; “Market Movement,” Oil & Gas Journal (April 15, 2002),
http://www.ogj.com/index/article-display/140976/articles/oil-gas-journal/volume-100/issue15/regular-features/ogj-newsletter/ogj-newsletter.html.
169
Fergus Addison, Kevin Kennelley, and Fikry Botros, “Future Challenges for Deepwater
Developments,” OTC Paper 20404, May 2010.
170
United States Court of Appeals, District of Columbia Circuit, Center for Biological Diversity v. U.S.
DOI, No. 07-1247 (D.C. Cir. April 17, 2009).
171
The White House, Office of the Press Secretary, Remarks by the President in a Discussion on
Jobs and the Economy in Charlotte, North Carolina, April 2, 2010, http://www.whitehouse.gov/thepress-office/remarks-president-a-discussion-jobs-and-economy-charlotte-north-carolina.
172
Gabriel Garcia Marquez, One Hundred Years of Solitude, Translated from the Spanish by Gregory
Rambassa (New York: Avon Books, 1970), 212.
69